We can have such ratios but the only problem is they will not make much sense. Cashflow is a very uncertain thing (in terms of fluctuation) while revenue and profit are relatively stable.
For example, if you invest little more in a year in expansion, your cashflow will go negative which will give a wrong analysis. If we look at ratios that involve sales, profits, account receivable as % of sales etc, they are pretty stable and can be predicted with fair accuracy.
Very few companies can maintain positive cash flow year after year unless they are pretty stable and have reached a position where further expansion is marginal. For a growing company, cashflow is usually negative.
Take any random company and look at the trend of revenues, profits, and cashflows. The trend of cashflow is the most unpredictable.
This is my opinion. Let others also give their own opinion.
Originally posted by datta.supratik
Dear LearningToFLy,
My question is that instead of having only a positive or negative cash flow, can we have a parameter which is expressed as a ratio....say cash flow wrt sales or cash flow with respect to PAT or cashflow wrt capex which gives us a better understanding whether the cash flow is enough for busniess continuity (and that the company will not go bust).
~Supratik
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