Operating Cash Margin

• This is cash equivalent of profit margin ratio.It excludes profit stuck in

receivables
• OCM=Net Cash from operating activities/Net Sales
• If this ratio is close to accrual based profit margin ratio it would be
assurance that sales and profits are not results of earnings
management(Some Companies tend to bias the Financial
Statements .In other words they make such accounting choices and
structure transactions that they make Financial Statements look
better)
Current Liability Cover
• This is measure of a firm’s ability to meet its current liabilities out of
cash flow from operating activities .
• CLC=Net Cash from operating activities/Current Liabilities
• A ratio of at least 2:1 indicates comfort ,since a firm should be able to
pay its current liabilities from regular cash flows.That would mean no
disruption of its activities.
Capital Expenditure Cover
• This is measure of a firm’s ability to pay for its capital expenditure out of cash
flow from operating activities.
• CEC=Net Cash provided by operating activities/NET capital expenditure
• NET Capital Expenditure=Purchase of Property,Plant Equipment-Sale of
Property,Plant Equipment.
• Tells us about the adequacy of internal cash generation to meet Cap Ex and
reinvest in business.
• A ratio of 2:1 or above would mean that a firm can finance its expansion
without depending on external support.
• A high ratio would be a matter of comfort to the lenders that the firm can pay
back its debt from current cash flows alongside the on-going expansion
Long Term debt Cover
• This is measure of a firm’s ability to repay its debt out of cash flow
from operating activities.The idea is similar to Current liability cover.
• LTDC=Net Cash Flow from OA/Non-current financial liabilities.
• Tells Us about firms ability to pay its debts without having to sell
assets.
Cash Interest Cover(CIC)
• This is a measure of a firm’s ability to meet interest out of cash flows
from operating activities. Idea is similar to interest coverage ratio.
• It tells whether cash flows from operating activities comfortably cover
interest expense.
• CIC=Net Cash Flows Provided by OA/Interest paid.