Thursday, August 21, 2014

Cash Flow Indicator Ratios : Operating Cash Flow/Sales Ratio

Series : Ratio Analysis    (21 th Post)

Is the company generating enough cash from its sales ?

This ratio helps us to understand the Cash being generated from sales or its ability to generate cash from its sales, usually expressed as a percentage.

The company’s sales growth should be in parallel with the Cash flow of the company if it’s not then there is change in terms of sale and Inefficient or ineffective management.

A high number means the firm will be able to grow because it has sufficient cash flow to finance additional production, a low number indicates the opposite.

The statement of cash flows has three distinct sections, each of which relates to an aspect of a company's cash flow activities - operations, investing and financing. In this ratio, we use the figure for operating cash flow

Formula: Operating cash flow / Sales Ratio = Operating Cash Flows / Sales Revenue

Next Post on Ratio Analysis:   Cash Flow Indicator Ratios: Free Cash Flow/Operating Cash Flow 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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