Thursday, August 21, 2014

Cash Flow Indicator Ratios: Free Cash Flow/Operating Cash Flow Ratio

 Series : Ratio Analysis    (22 th Post)

Is the company generating enough Free cash ?

This ratio helps us to understand  how much Free cash (Cash remaining after deducting Expenditure),the company is generating ,The Free Cash Flow/Operating Cash flow measure the relationship between Free cash & Operating Cash.

Free cash flow is defined as Operating Cash Flow minus the capital expenditures,This free cash is what a company use for expansion,acquisition,financial stability or to use this funds when the markets are not doing good.
The Higher the percentage of this Ratio the better the financial strength of the company.

Formula: FCF /OCF Ratio=Free Cash Flow(Operating Cash Flow- Capital Expenditure) / Operating Cash flow

Next Post on Ratio Analysis:   Cash Flow Indicator Ratios: Cash Flow Coverage Ratio

In my quest for learning value investing I came across this interesting article and thought would like to share this with the community
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