Abstract: Based on 60 financially distressed samples and 120 healthy samples during the period of 2003-2004,this study tests cash flows’ relative and incremental information content in financial distress prediction via unvariate and multivariate logistic analysis.The results of this study include:(1)Operating cash flows have more information content than accrued variables except net income/total assets and assets turnover 1 year in advance of financial distress;(2)Cash flow variables provide significant incremental information content based on accrued model both 1 and 2 year in advance of financial distress.The results above give the following implications:(1)Cash flow information should be employed in financial distress prediction model;(2)Cash flow statements provide useful information to investors in China.

Key words: cash flows, information content, financial distress, ST firms