Essay: Cash Flow Ratios

Essay: Cash Flow Ratios
April 11, 2011 Comments Off on Essay: Cash Flow Ratios Academic Papers on Business Studies,Sample Academic Papers admin

Sample Essay

The amount of cash flows is also used to calculate various ratios to analyse the financial position of a company and its ability to meet cash requirements during a certain period of time. These ratios usually depict the ability of a company to meet and pay off its liabilities.

One of the most important ratios involving cash flows is cash flow to capital expenditures ratio which is calculated by dividing the cash flows from operations by capital expenditures. Another ratio which is used to estimate the future stability of cash flows is calculating depreciation as a percentage of cash flows. These ratios help in evaluating the current and future cash flows and financial position of a company (Fridson and Alvares 2002).

There are also other cash flow ratios which indicate different aspects of a company’s financial position. Overall cash flow ratio is one of the most important cash flow ratios among these ratios. Friedlob and Welton (2008) explained that “the overall cash flow ratio measures the extent to which cash flow from operations is adequate for the company’s investing and financing activities” (p.161). The overall cash flow ratio then measures the capacity of the cash generated from operating activities to cover the cash required for investing and financing activities of the company. The overall cash ratio can be calculated by dividing the cash flow from operations by the sum of investing and financing outflows.

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