Esponel (es)
Türkçe (tr)
Russian (ru)
한국인 (kr)
Italiano (it)
हिंदी (in)
عربي (ar)
Français (fr)
Deutsch (de)
日本 (jp)
中国人 (cn)
CandleFocus Glossary Editor
Operating cash flow ratio (OCFR) is a financial metric that measures the ability of a company to meet its near-term financial obligations by measuring the cash flow generated from its normal operations. This metric is useful in identifying companies that have the ability to produce cash quickly to cover their short-term liabilities. It is a more accurate indicator of a company’s liquidity because it more accurately measures the cash that can be generated from the company’s operations.
The formula used to calculate operating cash flow ratio is:
Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities
When using this formula, the higher the ratio, the better. A ratio greater than 1 indicates that the company is generating more cash from its operations than is necessary to pay its short-term liabilities. On the other hand, a lower ratio indicates that the company is not generating enough cash to pay off its short-term liabilities and could be at risk of becoming insolvent if the situation does not improve.
For investors, the operating cash flow ratio is an important financial metric as it can provide insight into the company’s ability to pay off its short-term liabilities on time. It is important to note that operating cash flow does not account for any special financing activities such as share buybacks or increases in dividends. As such, investors should also look at other financial metrics such as the cash flow from investing and financing activities in order to get a comprehensive picture of the cash position of the company.
The operating cash flow ratio is particularly useful for investors looking to invest in small-cap companies or companies in emerging markets, as it can provide insight into a company’s liquidity without taking into account accounting tricks that may affect reported profits. However, it is important to keep in mind that the operating cash flow ratio is a backward-looking financial metric and should be used in conjunction with other financial data in order to get a complete picture of the company’s financial health.
The formula used to calculate operating cash flow ratio is:
Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities
When using this formula, the higher the ratio, the better. A ratio greater than 1 indicates that the company is generating more cash from its operations than is necessary to pay its short-term liabilities. On the other hand, a lower ratio indicates that the company is not generating enough cash to pay off its short-term liabilities and could be at risk of becoming insolvent if the situation does not improve.
For investors, the operating cash flow ratio is an important financial metric as it can provide insight into the company’s ability to pay off its short-term liabilities on time. It is important to note that operating cash flow does not account for any special financing activities such as share buybacks or increases in dividends. As such, investors should also look at other financial metrics such as the cash flow from investing and financing activities in order to get a comprehensive picture of the cash position of the company.
The operating cash flow ratio is particularly useful for investors looking to invest in small-cap companies or companies in emerging markets, as it can provide insight into a company’s liquidity without taking into account accounting tricks that may affect reported profits. However, it is important to keep in mind that the operating cash flow ratio is a backward-looking financial metric and should be used in conjunction with other financial data in order to get a complete picture of the company’s financial health.