CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II
An analyst wants a cash flow performance ratio that shows how much operating cash flow a company generates for each unit of revenue. Which ratio is most appropriate?
Cash flow to revenue is the most appropriate ratio. It divides operating cash flow by net revenue, showing how much operating cash is generated for each unit of sales. Cash return on assets uses assets as the base, and cash flow per share uses shares outstanding.
- ACash flow to revenueCorrect
- BCash return on assets
- CCash flow per share
Explanation
Cash flow to revenue is operating cash flow divided by net revenue, so it shows operating cash generated per unit of sales. Cash return on assets relates operating cash flow to average total assets, and cash flow per share relates it to the weighted average number of shares.
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