Cash flow on total assets ratio is the tool to measure the amount of cash flow a company made compare to the total assets. It is not related to the profit or loss that company makes. It is purely related to cash inflow to the company.Company assets are the resources that own and controlled by the company. They are the capital that investors have invested plus the amount company owes to others creditors. The amount of cash company generate reflect with how good they are in using their assets to generate cash.Cash flow is the result of the company operation which is the core business activity. Total assets refer to the average asset between two account periods.
Cash Flow on Total Assets Ratio Formula
AnalysisCash flow to total assets ratio measure the ability of the company to use its own assets to generate cash flow. The cash flow is the net between cash inflow and cash outflow from the company main business activities.The more cash flow company generate, it means the more efficient company use asset. It can help prevent the company from liquidation as they have enough money to pay for the supplier, employee, and other liabilities.A lower ratio shows that company is not using all of its assets potential to generate cash flow. Moreover, they will face a higher risk if the cash flow generates from the operation is not enough to cover other expenses and liabilities. The company will need to seek other sources of funds to support its operation and prevent liquidation.
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