Learn what the cash flow ratio is and why it is important

bitheerani319 · Post by **bitheerani319** » Mon Dec 23, 2024 6:23 am

Keeping up with financial indicators is key to growing your business. While there are several that you should take into account, this time we want to focus on cash flow ratios . At Moonflow, collection software , we are familiar with this metric, since, after all, efficient collection management favors the cash flow ratio . In this post we tell you more about this set of indicators.

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What will you find in this text?

What is the cash flow ratio?

Example of cash flow ratio

Why is the cash flow ratio important?

How to calculate the cash flow ratio example?

Cash flow ratio formula

Use case

How to analyze the cash flow ratio?

What is the cash flow ratio?
The cash ratio is a key financial indicator that reveals your company's buy uae email database to meet its most immediate payment obligations. It is calculated by taking into account cash on hand and other forms of liquid assets, such as bank deposits on demand. Another factor that is considered is the short-term obligations that your company must face.

Example of cash flow ratio
To understand this better, imagine that your company has a series of debts and invoices that are due in the near future, say within a month. The cash ratio evaluates whether the company has enough cash and liquid assets to cover these obligations without problems. In essence, it gives us an idea of how prepared your company is to face its most immediate financial commitments.

Why is the cash flow ratio important?
This ratio is crucial because a lack of liquidity can jeopardize the survival of your business. If you are unable to pay your debts on time, you could face problems such as lack of trust from suppliers, penalties from tax authorities, or even bankruptcy.

How to calculate the cash flow ratio example?
As we mentioned before, there are two factors that are considered when calculating the cash flow ratio : your liquid assets and your business's debts.