Research Objective: This study investigated the relationship between cash flow ratios and investment income of deposit money banks in Nigeria. Specifically, it assessed the relationships between operating cash flow ratio, cash reserve ratio, price-to-cash flow ratio, liquidity ratio, and the net interest margin of these banks.
Methodology: An ex-post-facto research design was employed, focusing on the period from 2011 to 2020. Secondary data were sourced from annual reports of sampled banks, and covariance analysis was utilized to examine panel data relationships.
Findings: The analysis revealed varying degrees of relationships between the cash flow ratios and net interest margins. The operating cash flow ratio showed a weak positive relationship with a correlation coefficient of 0.208507. In contrast, the cash reserve ratio exhibited a strong negative relationship with a correlation coefficient of -0.530655. Meanwhile, the price-to-cash flow ratio demonstrated a strong positive relationship, with a correlation coefficient of 0.628262.
Conclusion: The findings suggest that while operating cash flow and price-to-cash flow ratios positively influence net interest margins, cash reserve ratio negatively impacts it. These insights highlight the importance of cash flow management and policy adjustments to enhance the financial performance of deposit money banks.
Recommendations: The study recommends that deposit money banks enhance their operating cash flow ratios by promoting faster payment terms, incentivizing deposits, penalizing loan delays, reducing unnecessary expenditures, and maintaining cash flow forecasts. Furthermore, the Central Bank of Nigeria (CBN) is advised to lower the cash reserve ratio, enabling banks to increase investment and lending activities. Lastly, deposit money banks should strengthen customer loyalty, optimize workforce efficiency, and adopt strategic marketing to boost the market value of their stock.
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