Key ratios: dynamic liquidity analysis

Question 1

Name key ratios: dynamic liquidity analysis

Answer 1

Free cash flow: Operating cash flow - Investment Cash flow

Debt gearing ratio: net debt / free cash flow

cash-orientated investment rate: investment cash flow x 100 / operating cash flow

cash-orientated growth rate: Investment cash flow x 100/ depreciation, amortization (intangibles, PPE)

Depreciation ratio at Cash Flow: depreciation, amortization (intangibles(PPE) / operating cash flow

Question 2

Free cash flow

Answer 2

Free cash flow: Operating cash flow - Investment Cash flow

• free funds available to the company
• describe the companys potential value for investors and creditors
• are available for reinvestment of profits or the payment of interest or credit redemption

Question 3

Debt gearing ratio

Answer 3

Debt gearing ratio: net debt / Free cash flow

• How many years a company would neet to be able to repay its net debt from its free cash flow
• Also known as net debt service or duration of debt redemption

> > > A factor of greater than 10 or even a neg. cash flow over several periods -> danger of insolvency

Question 4

Cash orientated investment rate

Answer 4

Cash orientated investment rate: investment cash flow x 100 / Operating cash flow

• expresses the percentage of operating cash flow that was reinvested
• dynamic ratio

Question 5

Cash orientated growth rate

Answer 5

Cash orientated growth rate: Investment cash flow x 100 / depreciation, amortization (intangibles, PPE)

• Measure of domestic financing power of the company

> > > Ratio higher than 100% would indicate further expansion
Lower ratio = old machines, now new investments

Question 6

Depreciation ratio at Cash Flow

Answer 6

Depreciation ratio at cash flow: depreciation, amortization (intangibles, PPE) / Operating cash flow

• Shows the companys ability to “earn” the depreciation, amortization on its own