Dnyone want to try and explain how to calculate a shops cash flow ratio and give a example of where to put the number's?
(Business and Management Forum)
From contributor J:
Are you referring to the quick ratio? I haven't heard of a cash flow ratio. Or are you referring to the Statement of Cash Flow?
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.
The quick ratio is calculated as:
(current assets minus inventories) divided by current liabilities. Current assets are cash, bonds, or anything else that can quickly be converted to cash. Current liabilities are any debts that are due and payable in full within one year. (Your mortgage and vehicle notes are not included).
Cabinet shops typically have a quick ratio of around 1.60 as an industry standard. All the quick ratio does is compare your liquidity to other similar companies so they can see how you stack up
The second question has a little more vague answer; it depends on the lender. Bottom line is that your lender is wanting to make sure that in the event the business folds, they can at least break even and get their money back.
"Cash Flow" is the term commonly given to a company’s net income plus non cash expenses (depreciation/amortization). The “Cash Flow Ratio” is then:
Net Income + Non Cash Expenses (depreciation/amortization)/Current Portion of Long-term Debt
Almost all bank’s/lessors like to see this ratio at about 1.5:1. This of course varies by industry, but that is definitely what the majority of lenders will be looking for. This ratio becomes very important when financing larger equipment acquisitions ($125k +) over longer terms (60-72 months).