You’re interested in a Stock, so you’re reading its financial reports. Part of the test of a viable operation is having enough cash to keep the company going. The amount of money that flowsinto and out of a business during the time period being reported,The following formulas give you various tests of a company’s cash position:
· Free cash flow shows you how much money a company earns from its operations that can actually be put in a savings account for future use.
Free cash flow = Cash provided by operating activities – Capital expenditures – Cash dividends
· Cash return on sales looks specifically at how much cash is being generated by sales.
Cash return on sales = Cash provided by operating activities ÷ Net sales
· Current cash debt coverage ratio lets you know whether a company has enough cash to meet its short-term needs.
Current cash debt coverage ratio = Cash provided by operating activities ÷ Average current liabilities
· Cash flow coverage ratio finds out whether a company has enough money to cover its bills and finance growth.
Cash flow coverage ratio = Cash flows from operating activities ÷ Cash requirements
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