Operations cash flow ratio

The operation cash flow ratio is used to determine a company’s ability to pay its liabilities based off of its cash flow. If a company does not make enough to pay its debt it can be a poor investment.

The formula looks like this

(Cash Flow from Operations) / (Current Liabilities)

For example if the cash flow is $30 million and the current liabilities are $30 million the cash flow ratio would be 1. This means the company is just making enough to pay its liabilities.

If the number is below 1 the company is not making enough to pay its bills, making it a bad investment. If it is above 1 the company has excess profit they can reinvest in themselves. This makes it a strong stock.

Other Similar Ratios

Diluted Earnings Per Share – This Ratio is used to tell if a company’s stock is overvalued or undervalued.

PE Ratio - This ratio looks at the price of the stock and compares that to the earning of the company. It can be compared with other ratios to tell if a given stock is undervalued or overvalued.

Debt to Equity Ratio – This compares the amount of debt that the company has with it’s shareholder equity.

Cash Current Debt Ratio - This Ratio looks at a company’s ability to pay its current debt.

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