Professional Documents
Culture Documents
Statement
Analysis
K R Subramanyam
John J Wild
0
7
CHAPTE
R
7-3
Cash
Cash Flow
Flow Adequacy
Adequacy Ratio
Ratio –– Measure
Measure of
of aa company’s
company’s ability
ability to
to
generate
generate sufficient
sufficient cash
cash from
from operations
operations to
to cover
cover capital
capital expenditures,
expenditures,
investments
investmentsinininventories,
inventories,and
andcash
cashdividends:
dividends:
Three-year
Three-yearsum
sumof ofcash
cashfrom
fromoperations
operations
Three-year
Three-yearsum
sumof
ofexpenditures,
expenditures,inventory
inventoryadditions,
additions,and
andcash
cashdividends
dividends
Cash
CashReinvestment
ReinvestmentRatio
Ratio––Measure
Measureof
ofthe
thepercentage
percentageof
of
investment
investmentin
inassets
assetsrepresenting
representingoperating
operatingcash
cashretained
retainedand
andreinvested
reinvested
in the company for both replacing assets and growth in operations:
in the company for both replacing assets and growth in operations:
Operating
Operatingcash
cashflow
flow––Dividends
Dividends
Gross
Grossplant
plant++Investment
Investment++Other
Otherassets
assets++Working
Workingcapital
capital