Cash-Based Accounting Ratios - Breaking the Silence
- Topics:
- Decision Analysis
- Tags:
- Accounting,
- Balance Sheets,
- Cash Flow Statement,
- Finance,
- Financial Accounting,
- Financial Services,
- Financial Statements,
- Operational Accounting,
- Ratio
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Overview: The usefulness of financial statements is enhanced by an examination of the relationship between them; also by comparisons with previous time periods, other entities and expected performance. Value can be further added through the calculation and interpretation of accounting ratios. The traditional ratios suffer from the same defect as the financial statements (the profit and loss account and balance sheet) on which they are based. Such ratios are the result of comparing figures which have been computed using accounting conventions. This article demonstrates the contribution of three types of percentages and ratios: ratios to link the cash flow statement with key related items appearing in the balance sheet; the expression of each item in the cash flow statement as a percentage of net cash flow from operating activities; and the calculation of ratios to explore the inter-relationship between items within the cash flow statement.
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Format: HTML | Date: Oct 2000
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