The idea of cash flow is different from the idea of profit (net income). Cash flow ratios is the net amount of cash and cash-equivalents (the line item on the balance sheet that reports the worth of a company’s resources that are cash or can be converted into cash) moving into and out of a business. Positive cash flow shows that company’s assets are increasing while on the other hand Negative cash flow shows that company’s assets are decreasing. Cash flow ratios are the identification of cash flows to other elements of a unit’s financial statements. Accounting ratios are normally constructed on the net income of a business. Net income is a portion which can be used by accounting expectations and views.
Cash Flow Ratios Calculator
Operating cash flow is an objective measure of how well present accountabilities are covered by the cash flow produced from a company’s operations and to measure the performance. This cash flow ratios calculator may be used to compute three types of operating cash flow ratios.
Operating cash flow / Net income
Operating cash flow / Sales revenue
Operating cash flow / Total assets
Formula of Cash Flow Ratios
OCF Ration=Cash Flow from Operations/Current Liabilities
Steps require to Calculate the Cash Flow Ratios
We can calculate cash flow ratios such as the quick ratio, the present ratio and the operating cash flow ratio. We perform the following steps to calculate Cash Flow Ratios;
- First, find the present resources and present liabilities on the balance sheet. They are line things on the balance sheet. Divide the present resources by the current liabilities to determine the current ratio, which is a fast way to know about the firm’s health. For example, If the company has $800,000 in present moneys and $400,000 in current liabilities, the current ratio ($800,000 divided by $400,000) equals 2.0 times.
- Add the cash, cash equivalents and accounts receivable which are also all the line items on the balance sheet. Take this total and divide by the current liabilities which is also present in the balance sheet. The outcome will equal the quick ratio which is a better way to know about of a firm’s wealth. This shown in the following statement, If the company has $200,000 in cash, $40,000 in cash equivalents and $140,000 in accounts receivable as well as $140,000 in current liabilities, the quick ratio is (($200,000 plus $40,000 plus $140,000) divided by $140,000) equals 2.71 times.
- Find the cash flow from operations (processes) on the cash flow statement. Divide that number by the present liabilities on the balance sheet to find the operating cash flow ratio. This number gives specialists an idea of how much cash the company can deliver its liability payments. For instance, If the company has $800,000 in cash flow from operations as well as $140,000 in current liabilities, the operating cash flow ratio is ($800,000 divided by $140,000) equals 5.71 times.
- Get the operating cash flow from the cash flow statement and divide by the total sales make at the topmost of the income statement. This number defines the effectiveness of the company’s hard work of turning sales into cash. If the company has $100,000 in operating cash flow and $2,000,000 in sales, the calculation is ($100,000 divided by $2,000,000) equals 0.05 times.