The effect of the financial crisis on the cash flow statements of local manufacture and tourism firms

Abstract

Purpose: The recent financial crisis of the late 2000s has affected firms all over the world, especially when it comes to liquidity, and therefore their cash flow positions. Economically Malta is affected by such crisis. The purpose of this study is to determine whether this recent crisis has had an effect on the cash flows of local firms and consequently, their cash flow statements. Design: In order to carry out such a study, the Cash Flow Statements of selected companies in the tourism and manufacturing industries was obtained. Calculated ratios and absolute figures were analysed over a five-year period, 2005-2007 representing the years before the financial crisis and 2008-2009 representing the years during the crisis; looking out for any obvious changes over the last two years. Findings: The results show changes in certain ratios and figures during the 2008-2009 financial crisis. The changes appear greater in the tourism industry. Both industries in general show i decreased cash inflows, increasing current liabilities and liquidity problems during 2008 and 2009. Debt however, remains more or less stable over the years. Conclusions: The tourism industry experienced the most changes in its ratios and figures during the 2008-2009 crisis. This could mean that the industry is more susceptible to an economic crisis than the manufacturing industry, which deals more with necessities, rather than luxuries. The findings are not as severe as expected. This could be a result of Maltese banks’ willingness to lend out money during the crisis. Implications/Value: These results show the effect a global financial crisis has on the liquidity and hence, survival of local firms in the two selected industries. The findings emphasize the important role of banks in the situation, and how they were able to limit the effects and enable Maltese firms to survive the storm.