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Additionally,
a
company
either
need
to
raise
fresh
capital
such
(debt
or
equity)
or
sell
the
company
assets
in
case
the
free
cash
flow is
negative.
Larger
the
free
cash
flow
indicate that the company
is
having
greater financial
flexibility and the
growth
opportunity.
2.6 Cash Flow Ratio
Generally,
cash
flow
ratio
provides
more
accurate
information
and
measurement
than P/E ratio (Mason 1961). To what we have learnt, cash flow cash flow is the best
indicator for measuring company performances and health. On the other, due to its
capability of analyzing the
flow of money
into the company, cash
flow ratios
help to
recognize
troubled
company
as
well
as
struggling
stock.
Next,
when
referring
to
Mills
and
Yamamura
(1998,
p.55),
due
to
the
fact
that
cash
flows
ratios
provides
more
information
regarding
to
the
ability
of an
entity
to
fulfill
its
obligations
than
other
financial
statements
such
as
balance
sheet
and income
statement,
financial
statement users such as creditors and lenders start to use cash flows ratio.
2.6.1 Liquidity and Solvency measurement
According to Gibson (2007, p.613), the company’s liquidity level can be
measured
from the
company’s
short
term ability
to
fulfill
its
obligations
and
diverse need of cash. Generally, parties such creditors and suppliers are having
a
great concern toward the liquidity in order to analyze the paying ability of its
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