cash flow performance ratios analysis Flashcards
cash flow to revenue formula
CFO / net revenue
cash return on assets formula
CFO / total assets
cash return on equity formula
CFO / shareholder’s equity
cash to income
CFO / operating income
cash flow per share
(CFO-preference dividends) / no. of common shares outstanding
cash flow to revenue definition
measures cash generated per pound of revenue
cash return on assets
measures operating cash generated per pound of investment
cash to income definition
measures cash generating ability of operations
cash flow per share
measures operating cash flow on a per-share basis
cash flow to revenue interpretation
- low = indicates that the company’s cash flow is negative, related to its revenue - raises concern about being able to cover expenses and obligations
- generating negative cash flows
cash return on assets interpretation
- a high CROA ratio indicates that the company is generating more cash relative to its assets
- a low CROA indicates that the company isn’t generating enough
cash return on equity interpretation
- the higher the ROE, the more efficient the company is at generating income and growth from its equity financing
- a lower ROE may indicate that a company is not using its shareholder’s equity effectively to generate profits.
cash to income interpretation
- a cash ratio of 1 or greater indicates that a company has enough cash and cash equivalents to entirely pay off all ST debts
- a ratio under 0.5 is considered risky as the entity has twice as much ST debt compared to cash
- a ratio of 1 is sufficient to cover interest expenses but it also means that there is not enough cash to pay other expenses.
cash flow per share interpretation
the higher the number the better
