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Cash Flow Ratio Formula:
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The Cash Flow Ratio (CFR) is a liquidity ratio that measures a company's ability to pay off its current liabilities with the cash generated from its operations. It indicates how well a company can cover its short-term obligations using its operating cash flow.
The calculator uses the Cash Flow Ratio formula:
Where:
Explanation: The ratio shows how many times a company can pay off its current liabilities using its operating cash flow. A higher ratio indicates better liquidity position.
Details: The Cash Flow Ratio is crucial for assessing a company's short-term financial health. Unlike other liquidity ratios, it uses actual cash flow rather than accounting profits, providing a more realistic picture of a company's ability to meet its obligations.
Tips: Enter operating cash flow and current liabilities in the same currency units. Both values must be positive numbers. The result is expressed as a dimensionless ratio.
Q1: What is a good Cash Flow Ratio value?
A: Generally, a ratio above 1.0 is considered good, indicating the company can cover its current liabilities with operating cash flow. However, ideal values vary by industry.
Q2: How does CFR differ from Current Ratio?
A: Current Ratio uses current assets, while CFR uses operating cash flow. CFR provides a more conservative measure of liquidity as it excludes non-cash current assets.
Q3: Can CFR be negative?
A: Yes, if operating cash flow is negative, indicating the company is burning cash from operations, which is a serious concern for liquidity.
Q4: What are the limitations of CFR?
A: It doesn't consider the timing of cash flows and liabilities, and may be volatile for seasonal businesses. Should be used with other financial ratios.
Q5: How often should CFR be calculated?
A: Preferably quarterly to track liquidity trends, but at minimum annually as part of comprehensive financial analysis.