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.
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
The return on sales is the operating profit of the business expressed as a percentage of the revenue. It is a measure of the level of true income a business generates on its sales. It is calculated by dividing operating profit by revenue. Operating profit is the same as profit before interest and tax (PBIT), otherwise called earnings before interest and tax (EBIT).
The interest coverage ratio measures the amount of earnings a business has to make interest payments. It is calculated by dividing the profit before interest and tax by the interest expense. It is sometimes called the interest cover ratio or simply interest coverage or interest cover.