final exam- cash flow performance ratios

Question 1

cash flow to revenue definition

Answer 1

operating cash generation per dollar of revenue. of there is an increase, look if cash and sales increase. the higher the better. How much cash is the company generating?

Question 2

cash flow to revenue equation

Answer 2

CFO/net revenue

Question 3

cash flow on assets definition

Answer 3

Operating cash generated per dollar of asset investment. If increasing, then assets are becoming more efficient and compare with the ROE ratio

Question 4

cash flow on assets equation

Answer 4

CFO/total assets

Question 5

cash flow on equity definition

Answer 5

Operating cash generated per dollar of own investment. Take total equity figure. Compare with ROE ratio

Question 6

cash flow to income definition

Answer 6

Cash generating ability of operations. Take operating profit from the income statement. This ratio is important because it goes back from the fluctuation of cash. If there is a lot of discrepancy (lower than 1) between the numerator and the denominator, it means there is a liquidity problem = lots of accruals. It indicates the quality of earnings when the ratio is close or bigger than 1 and management and investors will see this as a good thing

Question 7

cash flow to income equation

Answer 7

CFO/operating Income (ANSWER IS IN TIMES – NOT %)

Question 8

cash flow per share definition

Answer 8

Operating cash flow on a per-share basis. Compare this with EPS. If EPS went down and this ratio increases, look for an explanation of the boost in cash decide whether to adjust this.

Question 9

cash flow per share equation

Answer 9

CFO - preferred dividends/no. of common shares outstanding (look at average weighted no. of shares number)