R19 Cash Flow Ratios Flashcards
Performance ratios (everything related to income statement and the balance sheet) - Cash flow to revenue
Cash flow to revenue =
Net revenue (not specifically net, it can also simply be revenue)
What it measures: operating cash generated per dollar of revenue.
Hint: if its a performance ratio and it starts with cash, the numerator is always CFO (except cash flow per share (numerator: CFO - Preferred dividends)).
Performance ratios (everything related to income statement and the balance sheet) - cash return on assets
cash return on assets =
Average total assets
What it measures: operating cash generated per dollar of asset investment.
Hint: if its a performance ratio and it starts with cash, the numerator is always CFO (except cash flow per share (numerator: CFO - Preferred dividends)).
performance ratios (everything related to income statement and the balance sheet) - cash return on equity
cash return on equity =
Average shareholders’ equity
What it measures: operating cash generated per dollar of owner investment.
Hint: if its a performance ratio and it starts with cash, the numerator is always CFO (except cash flow per share (numerator: CFO - Preferred dividends)).
Performance ratios (everything related to income statement and the balance sheet) - cash to income
Cash to income =
Operating income
What it measures: cash generating ability of operations. (It does have a lot of deviations. A lot of accrual)
Hint: if its a performance ratio and it starts with cash, the numerator is always CFO (except cash flow per share (numerator: CFO - Preferred dividends)).
Performance ratios (everything related to income statement and the balance sheet) - cash flow per share
Cash flow per share =
number of common shares outstanding
What it measures: operating cash flow on a per-share basis. (CS per share) (uses CFO instead of N.I (which is used to calculate EPS)).
Hint: if its a performance ratio and it starts with cash, the numerator is always CFO (except cash flow per share (numerator: CFO - Preferred dividends)).
Coverage ratios - debt coverage
Debt coverage =
Total debt
What it measures: financial risk and financial leverage
Coverage ratios - interest coverage
Interest coverage =
Interest Paid
What it measures: ability to meet interest obligations. (amount available to pay for interest)
Coverage ratios - reinvestment
Reinvestment =
Cash paid for long-term assets
What it measures: ability to acquire assets with operating cash flows. It is linked to depreciation (when assets lose value, they are repurchased).
Coverage ratios - debt payment
debt payment =
Cash paid for long-term debt repayment
What it measures: ability to pay debts with operating cash flows
Coverage ratios - dividend payment
Dividend payment =
Dividends paid
What it measures: ability to pay dividends with operating cash flows
Coverage ratios - investing and financing
Investing and financing =
Cash outflows for investing and financing activities (paying loans and buying back equity)
What it measures: ability to acquire assets, pay debts, and make distributions to owners.
Cashflow statements: difference between IFRS & GAAP
(interest received, interest paid, dividends received, dividends paid - state how they are reported differently under each IFRS and GAAP)
Interest received (investment):
IFRS - Operating or Investing
GAAP - Operating
Interest paid (financing):
IFRS - Operating or Financing
GAAP - Operating
Dividends received (investment):
IFRS - Operating or Investing
GAAP - Operating
Dividends paid (financing):
IFRS - Operating or Financing
GAAP - Financing
Hint:
GAAP is all operating except for dividends paid (that’s financing).
for IFRS: received - an investment so investing paid - financing all are operating as well
What falls under operating activities in the cashflow statement:
Operating activities: activities related to the normal operations of a company.
- cash inflows such as cash collected from sales, commissions, royalties etc.
- cash outflows such as cash payments for inventory, salaries and operating expenses.
- cash payments and receipts related to trading securities (securities that are not bought as investments)
What falls under investing activities in the cashflow statement:
Investing activities: activities associated with acquisition and disposal of long-term assets.
- cash from sale of property, plant and equipment (+)
- cash spent to purchase property, plant and equipment (-)
- cash payments and receipts related to investment securities (not trading securities)
What falls under financing activities in the cashflow statement:
financing activities: activities related to obtaining or repaying capital.
- issuance (+) or repurchase (-) of a company’s own preferred or common stock
- issuance (+) or repayment (-) of debt/bonds
- dividends payments to shareholders
