Q. What do you mean by Cash Flow Ratios?
Cash Flow Ratios: - Cash Flow Ratios are an additional device of cash management. Some important cash flow ratios are:
(i) Cash Turnover Ratio:-
Cash Turnover Ratio = Sales Per Period / Cash Balance
Higher cash turnover ratio point out that a given level of sales and cash balance requirement is less.
(ii) Cash Coverage Ratio:-
Cash Coverage Ratio = Annual Cash Flow before Interest and Taxes/ (Interest + Principal Payments (1/1-tax rate))
Higher the cash exposure ratio higher will be the credit worthiness of the firm for the reason that the lender' risk will be lower in such a case.
(iii)Cash to average Daily Purchase Ratio:-
Cash to Average Daily Purchase Ratio = Cash Balance /Average Daily Purchase
Average Daily Purchase = Purchases during the period/ Days during the period
(iv) Days of Cash Available:
Days of Cash Available = Average Cash Balance/Average Daily Outflows
(v) Cash Break-Even Point:
Cash Break-Even Point = Cash Fixed Costs/Contribution Per Unit
Contribution Per Unit = Selling price per unit - Variable Cost Per Unit.