6) Cash Flow Indicator Ratios
6.1) Operating Cash Flow/Sales Ratio
6.1.1) compares a company's operating cash flow to its net sales or revenues, which gives investors an idea of the company's ability to turn sales into cash.
6.1.2) It would be worrisome to see a company's sales grow without a parallel growth in operating cash flow.
6.1.3) Positive and negative changes in a company's terms of sale and/or the collection experience of its accounts receivable will show up in this indicator.
| Operating Cash Flow/Sales Ratio = | Operating Cash Flow |
| Net Sales(Revenue) |
6.2) Free Cash Flow/Operating Cash Ratio
6.2.1) measures the relationship between free cash flow and operating cash flow.
6.2.2) Free cash flow is most often defined as operating cash flow minus capital expenditures, which, in analytical terms, are considered to be an essential outflow of funds to maintain a company's competitiveness and efficiency.
6.2.3) The cash flow remaining after this deduction is considered "free" cash flow, which becomes available to a company to use for expansion, acquisitions, and/or financial stability to weather difficult market conditions.
6.2.4) The higher the percentage of free cash flow embedded in a company's operating cash flow, the greater the financial strength of the company.
| Free Cash Flow/Operating Cash Ratio = | Free Cash Flow * (Operating Cash Flow - Capital Expenditure) |
| Operating Cash Flow |
6.3) Cash Flow Coverage Ratio
6.3.1) measures the ability of the company's operating cash flow to meet its obligations - including its liabilities or ongoing concern costs.
6.3.2) The operating cash flow is simply the amount of cash generated by the company from its main operations, which are used to keep the business funded.
6.3.3) The larger the operating cash flow coverage for these items, the greater the company's ability to meet its obligations, along with giving the company more cash flow to expand its business, withstand hard times, and not be burdened by debt servicing and the restrictions typically included in credit agreements.
| Short term Debt Coverage = | Operating Cash Flow |
| Short term Debt |
| Capital Expenditure Coverage = | Operating Cash Flow |
| Capital Expenditure |
| Dividend Coverage = | Operating Cash Flow |
| Cash Dividends |
| CAPEX + Cash Dividends Coverage = | Operating Cash Flow |
| (Capital Expenditures + Cash Dividends) |
6.4) Dividend Payout Ratio
6.4.1) identifies the percentage of earnings (net income) per common share allocated to paying cash dividends to shareholders.
6.4.2) is an indicator of how well earnings support the dividend payment.
6.4.3) Here's how dividends "start" and "end." During a fiscal year quarter, a company's board of directors declares a dividend. This event triggers the posting of a current liability for "dividends payable." At the end of the quarter, net income is credited to a company's retained earnings, and assuming there's sufficient cash on hand and/or from current operating cash flow, the dividend is paid out. This reduces cash, and the dividends payable liability is eliminated.
6.4.4) The payment of a cash dividend is recorded in the statement of cash flows under the "financing activities" section.
| Dividend Payout Ratio (%) = | Dividends Per Common Share |
| Earnings Per Share |
Source: http://www.fncalculator.com/financialcalculator?type=financialRatios#
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