Journal of Commerce and Accounting Research

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

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


Affiliations
1 Assistant Professor, Dept. of Management & Business Administration, Aliah University, Kolkata, West Bengal, India
2 Ex-Reader & Head, Dept. of Commerce Ranaghat College, Ranaghat, Nadia, West Bengal, India
     

   Subscribe/Renew Journal


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.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Athma, P., & Rajyalaxmi, N. (2013). Accounting standards in India: Adoption of IFRS. Journal of Commerce and Accounting Research, 2(2), 39-45.

  • Barua, S., & Saha, A. T. (2015). Traditional ratios vs. cash flow based ratios: Which one is better performance indicator? Advances in Economics and Business, 3(6), 232-251.

  • Carslaw, C. A., & Mills, J. R. (1991). Developing ratios for effective cash flow statement analysis. Journal of Accountancy, 172(5), 63-70.

  • Das, S. (2015). Cash management in IT sector - A study. Journal of Commerce and Accounting Research, 4(3&4), 27-39.

  • Das, S. (2017). Measuring the performance through cash flow ratios - A study on CMC. Journal of Commerce and Accounting Research, 6(4), 1-9.

  • Esin, F. (2015). Liquidity and financial flexibility using the cash flow statement. The 2015 WEI International Academic Conference Proceedings (pp. 109-113).

  • Giacomino, D. E., & Mielke, D. E. (1993). Cash flow: Another approach to ratio analysis. Journal of Accountancy, 55-58.

  • Gombola, M. J., & Ketz, J. E. (1983). A note on cash flow and classification patterns of financial ratios. The Accounting Review, 58, 105-114.

  • Higgins, R. C. (1977). How much growth can a firm afford. Financial Management, 6(3), 7-16.

  • Kajananthan, R., & Velnampy, T. (2014). Liquidity, solvency and profitability analysis using cash flow ratios and traditional ratios: The telecommunication sector in Sri Lanka. Research Journal of Finance and Accounting, 5(23), 163-170.

  • Majumdar, A. (2015). Interest and operating cash flow. Business Innovations (pp. 89-95). Research India Publication, New Delhi.

  • Majumdar, D. (1986). Investment allowance reserve in an age of changing prices. The Chartered Accountant, Journal of ICA, India, 644-650.

  • Narwal, K. P., & Jindal, S. (2018). Working capital management impact on corporate profitability relation with corporate governance: Evidence from Indian manufacturing sector. Journal of Commerce and Accounting Research, 7(3), 8-12.

  • Rai, A., & Prakash, A. R. (2019). A comparative study on financial performance of power generating companies in India. Journal of Commerce and Accounting Research, 8(4), 12-27.


Abstract Views: 435

PDF Views: 1




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

Abstract Views: 435  |  PDF Views: 1

Authors

Ayan Majumdar
Assistant Professor, Dept. of Management & Business Administration, Aliah University, Kolkata, West Bengal, India
Debabrata Majumdar
Ex-Reader & Head, Dept. of Commerce Ranaghat College, Ranaghat, Nadia, West Bengal, India

Abstract


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.

References