Cash Flow Ratios Under Growth Approach as an Indicator for Evaluation of Business Performance

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For smooth functioning of key business activities, sufficient amount of cash is needed to meet an obligation when it becomes due or to meet an unanticipated expense. In India, cash flow is prepared as per the guidelines of Ind AS 7 - Statement of Cash Flows. The main objective of this standard is to provide information about the “historical changes in cash and cash equivalents” through the statement of cash flows. The financial analysis of different entities largely depends on accounting ratios, particularly in the areas of return on assets and sales to income. But, it is interesting to note that Ind AS 7 does not suggest any such set of ratios at all. Though cash flow statement can be treated as an integral part of financial statement, it is hardly found that authors of accounting have developed any set of cash flow ratios in order to evaluate the performance of a business. This paper attempts to use a set of cash flow ratios suggested by some renowned authors. The primary objective of this paper is to find out the usefulness of the ratios relating to cash flow statement in today’s business scenario. The paper discusses about the use of cash flow statement for the purpose of determining liquidity and flexibility of financial activities. It also has a significant role to play in the area of adoption of investment or credit decisions by the investors or creditors and it is equally applicable in the area of taking financial decisions by the corporate managers.

Keywords: Cash Flow Statement, Cash Flow Ratio, Ind AS, Growth

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