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Cash Flow Management Calculations


Calculations and Ratios presents the essential mathematical tools the finance professional needs for finding solutions to daily numerical problems. This section includes how to calculate return on investment, return on shareholders' equity, working capital productivity, EVA, risk-adjusted rate of return, CAPM, and many more.

  • Accounts Payable Turnover Ratio
    The rate at which a company pays off its suppliers. The accounts payable turnover ratio is a short-term liquidity measure that quantifies how well a company pays its average payable amount over a single accounting period.
  • Accounts Receivable Turnover
    The number of times in each accounting period, typically a year, that a company converts credit sales into cash.
  • Acid-Test Ratio
    How quickly a company’s assets can be turned into cash, which is why assessment of a company’s liquidity is also known as the quick ratio, or simply the acid ratio.
  • Activity-Based Costing
    Activity-based costing (ABC) attempts to create the big picture—crystal-clear, full, and accurate—by painting assorted little pictures.ABC identifies the relationship between a business activity and all the resources needed to conduct it by assigning costs to each of those resources, thus presenting the true total expense of the entire activity. ABC can account for so-called “soft,” or indirect, operating costs, and thus produce a more...
  • Break-Even Analysis
    Break-even is the point at which a product or service stops costing money to produce and sell, and starts generating a profit for your business. This means sales have reached sufficient volume to cover the variable and fixed costs of producing and distributing your product.
  • Contribution Margin
    The amounts that individual products or services ultimately contribute to net profit.
  • Creating a Cash Flow Statement
    Cash inflows and cash outflows over a specific period of time, typically a year.
  • Creditor and Debtor Days
    Creditor days is a measure of the number of days on average that a company requires to pay its creditors, while debtor days is a measure of the number of days on average that it takes a company to receive payment for what it sells. It is also called accounts receivable days.
  • Current Ratio
    A company’s liquidity and its ability to meet its short-term debt obligations.
  • Days Sales Outstanding
    A company’s average collection period, or the average number of days it takes a company to convert its accounts receivable into cash. Commonly referred to as DSO, it is also called the collection ratio.
  • Discounted Cash Flow
    Discounted cash flow (DCF) is a way of measuring the net present value (NPV) of future cash flow. This allows companies to express the value of an investment today based on predicted future returns. The idea behind discounted cash flow is that $1 today is worth more than $1 you might receive in the future. The money you have now can be invested and might generate interest whereas money you haven’t yet received can’t be used in this way, and...
    A company’s earnings from ongoing operations, before net income is calculated.
  • Future Value
    Any amount of any currency.
  • Internal Rate of Return
    Technically, the interest rate that makes the present value of an investment’s projected cash flows equal to the cost of the project; practically speaking, the rate that indicates whether or not an investment is worth pursuing.
  • Liquidity Ratio Analysis
    Liquidity ratios are a set of ratios or figures that measure a company’s ability to pay off its short-term debt obligations. This is done by measuring a company’s liquid assets (including those that might easily be converted into cash) against its short-term liabilities.There are a number of different liquidity ratios, which each measure slightly different types of assets when calculating the ratio. More conservative measures will exclude assets...
  • Net Present Value
    The projected profitability of an investment, based on anticipated cash flows and discounted at a stated rate of interest.
  • Return on Investment
    In the financial realm, the overall profit or loss on an investment expressed as a percentage of the total amount invested or total funds appearing on a company’s balance sheet.
  • Time Value of Money
    Time Value of Money (TVM) is one of the most important concepts in the financial world. If a business is paid $1 million for something today, that money is worth more than if the same $1 million was paid at some point in the future. The reason money given today is worth more is straightforward: If I have money today, I have the potential to earn interest on the capital.TVM values how much more a given sum of money is worth now (or at a specific...
  • Working Capital
    The funds that are readily available to operate a business. Working capital comprises the total net current assets of a business, which are its inventory, debtors, and cash—minus its creditors.
  • Working Capital Cycle
    The working capital cycle measures the amount of time that elapses between the moment when your business begins investing money in a product or service, and the moment the business receives payment for that product or service. This doesn’t necessarily begin when you manufacture a product—businesses often invest money in products when they hire people to produce goods, or when they buy raw materials.
  • Working Capital Productivity
    How effectively a company’s management is using its working capital.

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