The Study on Financial Index System of Profitability Evaluation Based on Cash Flow

This paper investigates two assessing systems of enterprise's profitability-the existing one bases on accrual accounting, and the new one on the basis of cash flow information. Making use of the data of listed companies' financial reports from 1997 to 2004, which belongs to the security markets of Shanghai and Shenzhen, we set up two financial index systems of profitability evaluation. Comparing with two results, through an empirical research with the factor analysis method that relies on the analysis of standardization and coherence in two systems, we not only analyze the superiority and inferiority in assessing abilities of the two systems, but also get a new summary about the changes of the profitability assessing system which bases on the statement of cash flow, and draw a conclusion that the profitability assessing system based on cash flow is preferable. These researches are all for progressing the enterprise's performance evaluating system.