Modules
Investing
Understanding Cash Flow Ratios
Understanding Cash Flow Ratios
A company’s cash flow indicates its liquidity position. Cash flow is the amount of cash or its equivalent that the company receives or gives out by the way of payments to creditors. Therefore, cash flow ratios are more important and authentic than Profit and Loss Statements and balance sheet ratios, which can be manipulated.
Cash flow statements, however, are difficult to manipulate. Cash flow statements deal with the actual cash flows in a business and are, therefore, more reliable. The companies that generate more cash are called cash cows, as they enjoy a better margin of safety during a downtrend. One can make ratios using the elements of the cash flow statement along with the Profit & Loss account and balance sheet.
One of the most important components in the cash flow statement is net cash flow from operations (CFO). It measures how much cash is generated from business operations. In cash flow ratios, net CFO is the most important element. Let us understand a few important ones:
Cash flow from operations to sales:
This ratio measures how much cash is generated from sales.
Formula: Net CFO/Sales
| Consolidated cash flow statement |
|
|
|
|
|
|
(Rs Cr) |
Mar 21 |
Mar 20 |
Mar 19 |
Mar 18 |
Mar 17 |
|
Net Cash from Operating Activities |
2446.87 |
2517.36 |
1071.12 |
1719.67 |
902.27 |
|
Net Sales |
17397 |
16350.2 |
17548.84 |
14840.52 |
13180.04 |
|
Net Operating cash flow to sales |
14.06% |
15.40% |
6.10% |
11.59% |
6.85% |
A brief analysis:
In March 2021 and March 2020, the operating cash flow to sales look healthy at 14.06% and 15.40%, respectively. This shows the efficiency of the company in converting sales into operating cash flows. A higher percentage implies higher efficiency. This ratio is similar to the operating margin ratio, with the only difference being that operating cash flow is used instead of operating profit from the Profit & Loss account.
Coverage ratio:
This ratio is similar to the interest coverage ratio, where we use EBIT. In this ratio, we will use cash flow from operations before taxes and interest.
| Consolidated Cash Flow Statement |
|
|
|
|
|
|
(Rs Cr) |
Mar 21 |
Mar 20 |
Mar 19 |
Mar 18 |
201703 |
|
Cash Flow from Operations before Interest and Taxes |
2650.41 |
2609.82 |
1291.05 |
1966.16 |
1228.67 |
|
Finance Costs |
442.96 |
280.83 |
181.07 |
162.92 |
102.88 |
|
Cash Flow Coverage Ratio |
5.98 |
9.29 |
7.13 |
12.07 |
11.94 |
A brief analysis:
The cash flow coverage ratio is healthy at 5.98% although it has been historically high at 12 times.
Cash Flow from Operations to Shareholder's Funds:
This ratio is similar to return on equity (RoE) except that the PAT is replaced by CFO.
Formula: CFO / Shareholder’s fund
| Consolidated cash flow statement |
|
|
|
|
|
|
Rs Cr |
Mar 21 |
Mar 20 |
Mar 19 |
Mar 18 |
Mar 17 |
|
Net Cash from Operating Activities |
2446.87 |
2517.36 |
1071.12 |
1719.67 |
902.27 |
|
Total Shareholder's Fund |
9472.56 |
7692.15 |
7641.16 |
7260.61 |
5331.19 |
|
Average of Shareholder's Fund |
8582.36 |
7666.66 |
7450.89 |
6295.90 |
4994.51 |
|
CFO/ Total shareholder’s Fund |
28.51% |
32.84% |
14.38% |
27.31% |
18.07% |
A brief analysis:
The CFO/total shareholder's fund has been healthy in the past two years. Historically, it has seen a higher ratio. However, since Mar 2018, there has been an increase in the equity capital resulting in a reduced ratio.
Asset efficiency:
Similar to asset turnover ratio, this ratio measures asset efficiency by comparing net CFO and total assets.
Formula: Net CFO/Total assets
| Consolidated cash flow statement |
|
|
|
|
|
|
(Rs Cr) |
Mar 21 |
Mar 20 |
Mar 19 |
Mar 18 |
Mar 17 |
|
Net Cash from Operating Activities |
2446.87 |
2517.36 |
1071.12 |
1719.67 |
902.27 |
|
Total Assets |
19163.45 |
16481.99 |
13648.94 |
13142.58 |
9876.01 |
|
Average Total Assets |
17822.72 |
15065.47 |
13395.76 |
11509.3 |
8697.78 |
|
Net CFO to Total Assets |
13.73% |
16.71% |
8.00% |
14.94% |
10.37% |
A brief analysis:
Historically, this company has had a higher total assets turnover. However, it has invested in fixed assets over a period, and, therefore, the returns are much lower. As the volume of sales increases, this ratio will improve.
Cash generating Power Ratio:
This ratio is used to measure the cash generated from operations to the total net CFO, cash flow from investing and cash flow from financing activities. This shows whether the company has to take the help of selling assets or borrowing when the CFO is not strong enough.
Formula: CFO / (CFO + cash from investing inflows + cash from financing inflows)
This ratio can be used to compare the results of this ratio with the peer group.
| Consolidated cash flow statement |
|
|
|
|
|
|
(Rs Cr) |
Mar 21 |
Mar 20 |
Mar 19 |
Mar 18 |
Mar 17 |
|
Net Cash from Operating Activities (a) |
2446.87 |
2517.36 |
1071.12 |
1719.67 |
902.27 |
|
Cash inflows from investing activities |
|
|
|
|
|
|
Sale of Fixed Assets |
33.91 |
30.61 |
19.22 |
34.53 |
55.35 |
|
Capital Subsidy Received |
0 |
17.18 |
85.68 |
122.3 |
155.32 |
|
Sale of Investments |
0 |
0 |
364.05 |
0 |
0 |
|
Interest Received |
66.73 |
5.6 |
50.67 |
8.95 |
40.43 |
|
Dividend Received |
0.29 |
0.27 |
5.08 |
4.58 |
7.85 |
|
Inter Corporate Deposits |
0 |
0 |
775 |
0 |
330 |
|
Total Cash inflows from Investing Activities (b) |
100.93 |
53.66 |
1299.7 |
170.36 |
588.95 |
|
Cash inflow from financing activities |
|
|
|
|
|
|
Proceeds: |
|
|
|
|
|
|
Proceeds from Issue of shares (incl share premium) |
0 |
0 |
0 |
1476.15 |
0 |
|
Proceed from Issue of Debentures |
0 |
0 |
0 |
0 |
0 |
|
Proceed from 0ther Long Term Borrowings |
1077.55 |
2353.71 |
883.66 |
1503.79 |
1756.9 |
|
Proceed from Short Term Borrowings |
0 |
846.69 |
0 |
0 |
461.14 |
|
Cash/Capital Investment Subsidy |
0 |
0 |
0 |
0 |
0 |
|
Loans from a Corporate Body |
0 |
0 |
0 |
0 |
0 |
|
Others |
1080 |
0 |
0 |
0 |
0 |
|
Total Cash inflows from financing Activities (c) |
2157.55 |
3200.4 |
883.66 |
2979.94 |
2218.04 |
|
Total Cash inflow (a + b + c) |
4705.35 |
5771.42 |
3254.48 |
4869.97 |
3709.26 |
|
CFO/Total cash inflow |
52.00% |
43.62% |
32.91% |
35.31% |
24.32% |
A brief analysis:
As can be seen in the table above, the company has improved its net CFO to total cash inflow from 32.91% in March 2019 to 52% in March 2021. This shows the company is now less dependent on external inflows and has improved its cash flow from operations.
External financing index ratio:
This cash flow ratio shows how dependent the company is on external borrowings.
Formula: Cash from financing/Net CFO
| Consolidated cash flow statement |
|
|
|
|
|
|
Rs Cr |
Mar 21 |
Mar 20 |
Mar 19 |
Mar 18 |
Mar 17 |
|
Net Cash Used in Financing Activities |
152.15 |
472.47 |
-62.21 |
2320.88 |
1894.63 |
|
Net Cash from Operating Activities |
2446.87 |
2517.36 |
1071.12 |
1719.67 |
902.27 |
|
Cash from financing/net CFO |
6.22% |
18.77% |
-5.81% |
134.96% |
209.98% |
A Brief analysis:
From a high degree of dependency on external borrowings, the company has now reduced its dependency by improving its operating cash flow. The higher dependency was on account of supporting investing activities
Appendix
| Consolidated Profit and Loss Account | 0 | 1 | 2 | 3 | 4 |
|
(Rs Cr) |
Mar 21 |
Mar 20 |
Mar 19 |
Mar 18 |
Mar 17 |
| REVENUE |
|
|
|
|
|
|
Net Sales |
17397 |
16350.2 |
17548.84 |
14840.52 |
13180.04 |
|
Growth (%) |
6.40% |
-6.83% |
18.25% |
12.60% |
11.24% |
|
EXPENSES: |
|
|
|
|
|
|
Cost of Materials Consumed |
7065.3 |
7049.83 |
8626.09 |
7390.65 |
6044.96 |
|
Purchases of Stock-in-Trade |
2009.34 |
1834.11 |
1982.56 |
1152.3 |
1080.74 |
|
Changes in Inventories |
319.87 |
191.65 |
-470.39 |
-147.45 |
-235.64 |
|
Employee Benefits Expenses |
2513.37 |
2482.2 |
2429.58 |
2156.65 |
1926.97 |
|
Cost of goods sold |
11907.88 |
11557.79 |
12567.84 |
10552.15 |
8817.03 |
|
Gross Profit |
5489.12 |
4792.41 |
4981 |
4288.37 |
4363.01 |
|
Growth (%) |
14.54% |
-3.79% |
16.15% |
-1.71% |
0.93% |
|
Gross margin (%) |
31.55% |
29.31% |
28.38% |
28.90% |
33.10% |
|
Other Expenses |
2691.66 |
2853.69 |
3022.37 |
2637.11 |
2514.28 |
|
Operating profit (EBITDA) |
2797.46 |
1938.72 |
1958.63 |
1651.26 |
1848.73 |
|
Growth (%) |
44.29% |
-1.02% |
18.61% |
-10.68% |
-7.45% |
|
Operating margin (%) |
16.08% |
11.86% |
11.16% |
11.13% |
14.03% |
|
PBDIT |
2797.46 |
1938.72 |
1958.63 |
1651.26 |
1848.73 |
|
Growth (%) |
44.29% |
-1.02% |
18.61% |
-10.68% |
-7.45% |
|
PBDIT margin (%) |
16.08% |
11.86% |
11.16% |
11.13% |
14.03% |
|
Depreciation and Amortization |
1314.95 |
1138.12 |
812.67 |
592.55 |
461.81 |
|
EBIT |
1482.51 |
800.6 |
1145.96 |
1058.71 |
1386.92 |
|
Growth (%) |
85.17% |
-30.14% |
8.24% |
-23.66% |
-11.70% |
|
EBIT margin (%) |
8.52% |
4.90% |
6.53% |
7.13% |
10.52% |
|
Finance Costs |
442.96 |
280.83 |
181.07 |
162.92 |
102.88 |
|
Add: Other Income |
129.38 |
23.68 |
123.12 |
116.54 |
151.81 |
|
PBT before extraordinary items |
1168.93 |
543.45 |
1088.01 |
1012.33 |
1435.85 |
|
Growth (%) |
115.09% |
-50.05% |
7.48% |
-29.50% |
-7.13% |
|
PBT margin (%) |
6.72% |
3.32% |
6.20% |
6.82% |
10.89% |
|
Extraordinary Items |
-607.74 |
0 |
-200 |
0 |
0 |
|
PBT after extraordinary items |
561.19 |
543.45 |
888.01 |
1012.33 |
1435.85 |
|
Tax Expenses |
211 |
67.04 |
208.29 |
288.45 |
336.55 |
|
PAT before extraordinary items |
957.93 |
476.41 |
879.72 |
723.88 |
1099.3 |
|
Growth (%) |
101.07% |
-45.85% |
21.53% |
-34.15% |
1.94% |
|
PAT margin (%) |
5.51% |
2.91% |
5.01% |
4.88% |
8.34% |
|
PAT after extraordinary items |
350.19 |
476.41 |
679.72 |
723.88 |
1099.3 |
|
Basic EPS |
5.68 |
8.33 |
11.88 |
13.43 |
21.59 |
|
Diluted EPS |
5.68 |
8.33 |
11.88 |
13.43 |
21.59 |
| Consolidated Balance Sheet |
|
|
|
|
|
|
RS Cr |
Mar-21 |
Mar-20 |
Mar-19 |
Mar-18 |
Mar-17 |
|
Shareholder's Funds |
|
|
|
|
|
|
Share Capital |
63.51 |
57.21 |
57.21 |
57.21 |
50.9 |
|
Ordinary Capital |
63.51 |
57.2 |
57.2 |
57.2 |
50.9 |
|
Reserves and Surplus |
9409.05 |
7634.94 |
7583.96 |
7203.41 |
5280.29 |
|
Total Shareholder's Fund |
9472.56 |
7692.15 |
7641.16 |
7260.61 |
5331.19 |
|
Non-Current Liabilities |
|
|
|
|
|
|
Long-Term Borrowings |
3660.43 |
3208.32 |
2443.85 |
1864.39 |
834.03 |
|
Deferred Tax Liabilities (Net) |
673.37 |
531.27 |
575.46 |
544.34 |
492.73 |
|
Deferred Tax Liability |
1323.16 |
1078.5 |
872.91 |
735.59 |
576.32 |
|
Deferred Tax Assets |
649.79 |
547.23 |
297.45 |
191.25 |
83.59 |
|
Other Long Term Liabilities |
978.71 |
907.44 |
289.48 |
356.5 |
302.7 |
|
Long-Term Provisions |
49.47 |
50.33 |
49.88 |
45.07 |
39.17 |
|
Total Non-Current Liabilities |
5361.99 |
4697.37 |
3358.68 |
2810.3 |
1668.63 |
|
Current Liabilities |
|
|
|
|
|
|
Short-Term Borrowings |
100.49 |
1118.07 |
292.51 |
647.42 |
784 |
|
Trade Payables |
1929.26 |
1610.72 |
1368.66 |
1512.57 |
1040.75 |
|
Other Current Liabilities |
2036.03 |
1127.55 |
741.55 |
553.52 |
625.54 |
|
Short-Term Provisions |
263.12 |
236.14 |
246.38 |
358.16 |
425.89 |
|
Total Current Liabilities |
4328.9 |
4092.48 |
2649.1 |
3071.67 |
2876.2 |
|
|
|
|
|
|
|
|
TOTAL EQUITY AND LIABILITIES |
19163.45 |
16481.99 |
13648.94 |
13142.58 |
9876.01 |
|
Non-Current Assets |
|
|
|
|
|
|
Fixed Assets |
11264.09 |
10557.26 |
7054.42 |
6385.65 |
5416.64 |
|
Tangible Assets |
9672.05 |
8632.18 |
6368.08 |
5679.32 |
4770.95 |
|
Intangible Assets |
37.6 |
32.04 |
31.44 |
34.54 |
24.22 |
|
Capital Work-in-Progress |
1029.95 |
1272.07 |
654.9 |
671.79 |
621.48 |
|
Intangible assets under development |
0 |
0 |
0 |
0 |
0 |
|
Non-Current Investments |
2409.72 |
2409.52 |
2232.57 |
1639.38 |
1004.86 |
|
Deferred Tax Assets (net) |
0 |
0 |
0 |
0 |
0 |
|
Deferred Tax Assets |
0 |
0 |
0 |
0 |
0 |
|
Deferred Tax Liability |
0 |
0 |
0 |
0 |
0 |
|
Long-Term Loans and Advances |
310.61 |
447.63 |
738.8 |
151.34 |
234.38 |
|
Other Non-Current Assets |
281.46 |
150.03 |
112.7 |
89.29 |
31.13 |
|
Total Non-Current Assets |
14265.88 |
13564.44 |
10138.5 |
8265.66 |
6687.02 |
|
Current Assets |
|
|
|
|
|
|
Current Investments |
90.07 |
0 |
0 |
1339.05 |
394.44 |
|
Inventories |
2076.6 |
1808.25 |
2051.48 |
1721.49 |
1729.4 |
|
Trade Receivables |
732.04 |
445.08 |
779.49 |
550.15 |
386.49 |
|
Cash and Cash Equivalents |
1400.25 |
236.58 |
217.57 |
260.52 |
139.38 |
|
Short-Term Loans and Advances |
511.07 |
298.63 |
291.13 |
832.28 |
325.1 |
|
Other Current Assets |
87.55 |
129 |
170.77 |
173.43 |
214.18 |
|
Total Current Assets |
4897.57 |
2917.55 |
3510.44 |
4876.92 |
3189 |
|
TOTAL ASSETS |
19163.45 |
16481.99 |
13648.94 |
13142.58 |
9876.01 |
| Consolidated cash flow statement |
|
|
|
|
|
|
Rs Cr |
202103 |
202003 |
201903 |
201803 |
201703 |
|
Net Profit before Tax & Extraordinary Items |
561.22 |
543.44 |
888.13 |
1012.33 |
1435.55 |
|
Adjustment For |
|
|
|
|
|
|
Depreciation |
1314.95 |
1138.12 |
812.67 |
592.55 |
461.81 |
|
Interest (Net) |
360.86 |
275.25 |
157.65 |
129.53 |
63.89 |
|
Dividend Received |
-0.29 |
-0.27 |
-5.08 |
-4.58 |
-8.46 |
|
P/L on Sales of Assets |
-3.67 |
-1.97 |
-1.6 |
-0.81 |
3.52 |
|
Prov. & W/O (Net) |
13.16 |
6.51 |
148.1 |
21.61 |
56.08 |
|
P/L in Forex |
-19.29 |
43.75 |
-8.57 |
-2.74 |
-27.85 |
|
Others |
-38.11 |
-190.2 |
-157 |
-97.07 |
-32.87 |
|
Op. Profit before Working Capital Changes |
2188.83 |
1814.63 |
1834.3 |
1650.77 |
1951.67 |
|
Adjustment For |
|
|
|
|
|
|
Trade & 0th receivables |
-450.07 |
398.42 |
229.23 |
-183.47 |
-111.41 |
|
Inventories |
-88.4 |
380 |
-579.35 |
-149.61 |
-782.79 |
|
Trade Payables |
496.19 |
138.35 |
-148.98 |
560.62 |
274.32 |
|
Loans & Advances |
0 |
0 |
0 |
0 |
-0.69 |
|
Others |
503.86 |
-121.57 |
-44.16 |
87.84 |
-102.43 |
|
Cash flow from operations before interest and taxes |
2650.41 |
2609.82 |
1291.05 |
1966.16 |
1228.67 |
|
Direct Taxes Paid |
-203.54 |
-92.46 |
-219.94 |
-246.48 |
-326.41 |
|
Cash Flow before Extraordinary Items |
2446.87 |
2517.36 |
1071.12 |
1719.67 |
902.27 |
|
Net Cash from Operating Activities ( a ) |
2446.87 |
2517.36 |
1071.12 |
1719.67 |
902.27 |
|
Investment in Assets : |
|
|
|
|
|
|
Purchased Fixed Assets |
-1190.22 |
-2836.12 |
-2293.17 |
-3101.72 |
-3318.99 |
|
Sale of Fixed Assets |
33.91 |
30.61 |
19.22 |
34.53 |
55.35 |
|
Capital Subsidy Received |
0 |
17.18 |
85.68 |
122.3 |
155.32 |
|
Financial/Capital Investment : |
|
|
|
|
|
|
Purchase of Investments |
-90.02 |
-13.4 |
-2.45 |
-7.19 |
-222.82 |
|
Sale of Investments |
0 |
0 |
364.05 |
0 |
0 |
|
Interest Received |
66.73 |
5.6 |
50.67 |
8.95 |
40.43 |
|
Dividend Received |
0.29 |
0.27 |
5.08 |
4.58 |
7.85 |
|
Inter Corporate Deposits |
0 |
0 |
775 |
-925 |
330 |
|
Others |
-1162.66 |
-21.45 |
-31.39 |
-27.29 |
-414.85 |
|
Cash Flow from Investing Activities ( b ) |
-2341.98 |
-2817.32 |
-1027.32 |
-3890.83 |
-3367.71 |
|
Proceeds: |
|
|
|
|
|
|
Proceeds from Issue of shares (incl share premium) |
0 |
0 |
0 |
1476.15 |
0 |
|
Proceed from 0ther Long Term Borrowings |
1077.55 |
2353.71 |
883.66 |
1503.79 |
1756.9 |
|
Proceed from Short Tem Borrowings |
0 |
846.69 |
0 |
0 |
461.14 |
|
Payments: |
|
|
|
|
|
|
Of the Long Term Borrowings |
-301.89 |
-1814.11 |
-202.69 |
-169.62 |
-133.9 |
|
Of the short term Borrowings |
-1097.89 |
0 |
-354.43 |
-173.35 |
0 |
|
Of financial Liabilities |
-264.94 |
-259.56 |
0 |
0 |
0 |
|
Dividend Paid |
0 |
-431.02 |
-206.89 |
-183.8 |
-123.68 |
|
Interest Paid |
-340.67 |
-223.24 |
-181.86 |
-132.3 |
-65.83 |
|
Others |
1080 |
0 |
0 |
0 |
0 |
|
Net Cash Used in Financing Activities ( c ) |
152.15 |
472.47 |
-62.21 |
2320.88 |
1894.63 |
|
Net Inc/(Dec) in Cash and Cash Equivalent (a + b + c) |
257.05 |
172.51 |
-18.41 |
149.72 |
-570.82 |
|
|
|
|
|
|
|
|
Cash Flow Summary |
|
|
|
|
|
|
Cash and Cash Equivalents at Beginning of the year (1) |
634.72 |
462.2 |
480.62 |
330.89 |
589.99 |
|
Add: Net Inc/(Dec) in Cash and Cash Equivalent (2) |
257.05 |
172.51 |
-18.41 |
149.72 |
-570.82 |
|
Cash and Cash Equivalents at End of the year (1 + 2) |
891.77 |
634.72 |
462.2 |
480.62 |
19.18 |
Points to remember
- Cash flow statements are more reliable as they deal with actual cash flows in a business
- These ratios are difficult to manipulate, and so it is important to study them
- Net cash flow from operations (CFO) measures how much cash is generated from business operations, so it is the most important element
