Cash flow ratios
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Are cash flow ratios a better measure for testing a companys liquidity as against the conventional measures of current and quick ratios? Why?
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Are cash flow ratios a better measure for testing a companys liquidity as against the conventional measures of current and quick ratios? Why?
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CASH FLOW RATIOS ARE MORE RELIABLE indicators of liquidity than balance sheet or income statement ratios such as the quick ratio or the current ratio.
When it comes to liquidity analysis, cash flow information is more reliable than balance sheet or income statement information. Balance sheet data are static-measuring a single point in time-while the income statement contains many arbitrary noncash allocations-for example, pension contributions and depreciation and amortization. In contrast, the cash flow statement records the changes in the other statements and ...
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- MBA, Rochester Institute of Technology
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