The quality of income ratio or earnings quality ratio can be used to indicate that the net income of a business demonstrates high quality characteristics such as, for example, being cash backed, predictable, recurring and conservative.
This cash ratios calculator uses operating cash flow instead of net income to calculate three financial ratios. Unlike net income, cash flow is an objective measure of performance which cannot be manipulated or distorted using accounting assumptions and opinions.
Cash flow ratios can be calculated using cash flow from operating activities found in the cash flow statement of a business. Using cash flow avoids the use of net income which is a subjective measure traditionally used in the calculation of accounting ratios.
A vertical analysis shows each line of financial statements as a percentage of a base line item so that comparisons can be made. This free Excel calculator produces a vertical analysis of an income statement in relation to total revenue, and of a balance sheet in relation to total assets.
The degree of operating leverage shows the effect on operating income of the cost structure of a business. The higher the fixed costs the higher the leverage and the more volatile and risky the operating income of a business is viewed.
The degree of operating leverage calculator allows for details relating to two businesses or accounting periods to be entered so that comparisons can be made.
The operating leverage shows the level of fixed cost leverage within a business, and the degree of operating leverage shows the impact of the cost structure on the operating income of the business.
The operating income for a business with high leverage can change dramatically for a given change in the number of units sold, and its earnings are said to be more volatile and therefore more risky
It is quite feasible for a business to show a healthy balance sheet and be profitable, but if it runs out of cash it will fail.
The balance sheet only shows the position at a particular point in time, and the income statement deals in profit not cash. The purpose of the business cash flow analysis is to correct this situation.
Income statement analysis can be carried out using ratios based on information contained within the income statement. Understanding how to read a income statement and regular monitoring of the income statement ratios provides owners and management with a useful tool to help them manage their business more effectively.
By analyzing the income statement a business is able to see how it is performing relative to earlier accounting periods, and how its performance compares to other businesses in the industry.
Balance sheet ratio analysis can be carried out using ratios based on information contained within the balance sheet. Knowing how to analyze a balance sheet gives the reader a better understanding of a business, allows changes over time to be monitored, and allows comparisons of different businesses to be made.
The common size income statement shows each line of a standard income statement as a percentage of the total revenue (sales) of a business.
This free Excel calculator produces a common size income statement from standard information taken from the income statement of a business.