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Series : Ratio Analysis (20 th Post)
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Q How solvent, liquid, and viable the company is ?
This ratio
helps us to understand the Cash being generated how much is generated These ratios can give users another look at the
financial health and performance of a company.
Cash inflows
usually arise from one of three activities – financing, operations or
investing .In accounting using non cash
based transactions companies that appear to be profitable are actually at a financial
risk if they are generating little cash ,
Example if a company does lots of
sales on credit they will look profitable but they are yet to receive the cash
from the sale’s. Using this Ratios helps to highlight this Details about a company's performance.
This ratio uses cash flow along with other key metrics to determine how much cash the company is generating from the sales ,the Cash
generated is free and clear and ready to meet company's obligations.
The Cash flow Ratios that will be defined in
following posts are
1.Operating
Cash Flow/ Sales Ratio
2.Free Cash
Flow/ Operating Cash Flow Ratio
3 Cash Flow
Coverage Ratio
Next Post on Ratio Analysis: Cash
Flow Indicator Ratios : Operating Cash Flow/Sales Ratio
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