Cash Flows Statement

The cash flows statement is one of the five respective financial statements issued by businesses. The cash flows statement converts accrual accounting information into a cash basis report keying in on three distinct areas of cash. This includes cash from regular operations, cash flow from investing (purchase/sale of fixed assets) and financing.

Price to Cash Flow

Price to Cash Flow Ratio

The price to cash flow ratio is a valuation tool used to assist buyers and sellers of stock in determining timing of purchases or the disposition of shares.   Unlike the other valuation ratios, this particular ratio utilizes the cash flows statement in determining the outcome.   The formula is simple:

Price to Cash Flow = $Market Price of a Share of Stock/Cash Flow in Dollars Per Share of Stock

Cash Flow From Operations – Basic Formula

n a pure cash only operation, the profit as reported on the income statement would also be cash flow from operations.  But modern-day business is not pure in how it is conducted.   Companies agree to pay suppliers at a later time, payroll is weekly or monthly, benefits that are paid in the future are offered to employees, credit is extended to customers; the list can go on and on.

Debt to Equity Ratio

Another leverage ratio used to evaluate the financial integrity of a business is the debt to equity ratio.  It is strictly a bottom half balance sheet ratio.  Its result explains the relationship of volume of debt and corresponding equity to finance the operations of a business, i.e. the purchase of assets.

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