Cash Flow Analysis
Accounting analysis of Financial StatementsAnalysis of Statement of Cash Flow
Master of Business Administration
University of Kelaniya
1
CASH FLOW RATIOS
• Cash flow ratios can be categorized as,
Performance ratios
Coverage ratios
2
Performance Ratios
1.
2.
3.
4.
Operating Cash Flow to Sales
Cash Return to Assets
Cash Return on Equity Ratio
Cash flow per share
1. Operating Cash Flow to Sales
• Expressed as a percentage, compares a company's operating cash flow to its net sales or revenues.
• Gives investors an idea of the company's ability to turn sales into cash.
Operating Cash Flow/ Net Sales
2. Cash Return to Assets
Cash return on assets measures management’s success in generating cash from operating activities (making operating decisions).
Operating Cash Flow/ Total Assets
3. Cash Return On Equity Ratio
This ratio measures the amount of cash generated from operations per one rupee of average shareholders' equity.
Operating Cash Flow/ Total Equity
4. Cash flow per share
• Many analysts and investors place more weight on cash flow per share than earnings per share.
• Because EPS is more easily manipulated, its reliability can at times be questionable. Cash, on the other hand, is difcult to fake. • Therefore, cash flow per share is a useful measure for the strength of a firm and the sustainability of its business model.
Operating Cash Flow/ No. of Shares
Coverage Ratio
1.
2.
3.
4.
5.
Debt coverage ratio
Cash flow interest coverage ratio/Interest coverage Ratio
Reinvestment ratio
Free Cash Flow to Operating Cash Flow Ratio
Cash Flow Adequacy Ratio
8
1. Debt coverage ratio / CF Coverage Ratio
•The cash flow coverage ratio is an indicator of the ability of a company to pay interest and principal amount.
•This ratio tells the number of times the financial obligations of a company are covered by its earnings.
• It is an important indicator of the liquidity position of a company.
Cash Flow Coverage Ratio = Operating Cash Flows /
Total Debt
Master of Business Administration
University of Kelaniya
1
CASH FLOW RATIOS
• Cash flow ratios can be categorized as,
Performance ratios
Coverage ratios
2
Performance Ratios
1.
2.
3.
4.
Operating Cash Flow to Sales
Cash Return to Assets
Cash Return on Equity Ratio
Cash flow per share
1. Operating Cash Flow to Sales
• Expressed as a percentage, compares a company's operating cash flow to its net sales or revenues.
• Gives investors an idea of the company's ability to turn sales into cash.
Operating Cash Flow/ Net Sales
2. Cash Return to Assets
Cash return on assets measures management’s success in generating cash from operating activities (making operating decisions).
Operating Cash Flow/ Total Assets
3. Cash Return On Equity Ratio
This ratio measures the amount of cash generated from operations per one rupee of average shareholders' equity.
Operating Cash Flow/ Total Equity
4. Cash flow per share
• Many analysts and investors place more weight on cash flow per share than earnings per share.
• Because EPS is more easily manipulated, its reliability can at times be questionable. Cash, on the other hand, is difcult to fake. • Therefore, cash flow per share is a useful measure for the strength of a firm and the sustainability of its business model.
Operating Cash Flow/ No. of Shares
Coverage Ratio
1.
2.
3.
4.
5.
Debt coverage ratio
Cash flow interest coverage ratio/Interest coverage Ratio
Reinvestment ratio
Free Cash Flow to Operating Cash Flow Ratio
Cash Flow Adequacy Ratio
8
1. Debt coverage ratio / CF Coverage Ratio
•The cash flow coverage ratio is an indicator of the ability of a company to pay interest and principal amount.
•This ratio tells the number of times the financial obligations of a company are covered by its earnings.
• It is an important indicator of the liquidity position of a company.
Cash Flow Coverage Ratio = Operating Cash Flows /
Total Debt