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In Part A, we have looked at Cash sufficiency Financial ratio, let’s look at another cash flow ratio namely CASH FLOW EFFICIENCY FINANCIAL RATIO:
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Ratios For Cash flow efficiency |
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(a) Cash flow to sales |
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Purpose: to measure the ability to convert sales revenue into cash flows. Formula: Cash from operations Net sales revenue |
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(b) Operation Index |
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Purpose: an index measuring the relationship between profit from operations and operating cash flows Formula: Cash from operations Operating profit after income tax |
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(c ) Cash flow return on assets |
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Purpose: to measure the entity’s operating cash flow return on assets before interest and tax. Formula: Cash from operations + Tax Paid + Interest paid Average total assets |
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