Operating cash flow ratio

Operating cash flow ratio = Operating cash flow/Current liabilities 

Low operating cash flow ratios can be problematic however, closer examination of the ratio is necessary. For example, PepsiCo has 

Some industries, such as capital-intensive industries, historically have lower operating cash flow ratios. 

A company may be undertaking projects and building infrastructure, to increase future cash flows. 

Like other ratios, it is best to view the trend of the ratio. 

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Operating cash flow ratio Operating cash flow/ Current liabilities = 9,688/ 17,839 = 0.54... 

For the model of industrial corporations, the optimum discriminant function consists of the following four financial ratios free cash flow to total debt (FCF/TD), inverse variation coefficient of operating cash flows (VACO), retained earnings to total assets (RE/TA), and total market value of the corporation (TMVD). An explanation of the financial ratios is given in the case study. The discriminant function is formulated as follows ... 

Figure 3.6a shows how costs for a new distillation system vary with the reflux ratio. It expresses the capital cost as an annual cost. This can be achieved hy dividing the capital cost by the expected payout period. A discounted cash flow (DCF) analysis is used for estimating this payout period. The capital cost shonld include the costs of auxiliaries (reboiler, condenser, vacuum equipment, pumps, piping in many cases, costs of vent systems, coolant, and heating medium handling equipment are also affected). The operating costs should include reboiler... 

Taken together, these measurement problems imply that the U.S. marginal corporate tax rate is too high a rate to apply to the cash flows associated with a new product after it is introduced to the market. A better approximation of the tax burden would be based on the ratio of taxes paid to income from ongoing pharmaceutical operations.22... 

The chapter starts by introducing the basic concepts of an economic analysis, as prices, breakdown of the capital and manufacturing costs, profit, as well as the formation of cash flow. Because the time-value of money plays a central role the next section presents some basic elements of financial methods. Two other sections deal with the detailed estimation of capital and operation costs. Simplified equations based on typically cost ratios can be used for quick estimations. These ratios are also helpful for the control of more detailed computations. The chapter ends with a more detailed description of the profitability analysis, both by traditional and modem methods. Note that the methods developed in this chapter can be applied using spreadsheets. 

Debt Service Coverage Ratio (DSCR) = Net Operating Income / Debt Payments and so indicates a borrower s ability to repay a loan with a DSCR of less than 1.0, meaning that there is insufficient cash flow generated by the property to cover required debt payments. 

Debt service coverage ratio = Cash flow from operations before... 

This ratio provides insight into whether or not the cash generated by the company s operations is sufficient to repay interest, principal, and other debt obligations. Other debt obligations may include early retirement of debt and lease payments. The information to complete this ratio comes from the statement of cash flows. As this ratio is regularly changed to fit the user s particular circumstance, you may find still that EBIT or a whole host of other variables are used in the numerator, but still we include all debt obligations in the denominator. 

Companies and management are evaluated on many outcomes and operations functions can directly impact a company s financial performance. Companies are evaluated on their ability to pay current bills, profitability, management of assets and debts, and the valuation of the company. Operations and supply chain managers have a significant impact on a company s cash flow, profitability, debt burden, utilization of assets, and its ability to remain in business. Operational decisions and actions will be reflected on a company s financial statements and subsequent performance ratios. Table 4.5 provides a summary of the performance ratios that were introduced in this chapter. 

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