50
d)
Cash Flow Adequacy Ratio
Cash Flow Adequacy Ratio
3 years sum of cash flow from operating activities
3 years sum of capital expenditure, inventory additions and cash dividends
Table 2.27: Calculation Cash Flow Adequacy Ratio
From: Financial Statement Analysis, 2007
According to Wild et al (2007, p.390), the cash flow adequacy ratio
measures the ability of the company to generate its cash flow from operating
activities
in order
to cover all
the
long
term annual debt. On
the other
hand,
Wild et al (2007, p.390) also states that the ratio also act as an assistance for
financial users to analyze the company’s credit quality. A company should
have at least 1.0 in the cash flow adequacy ratio which indicates the
company’s capability to at least pay the long term debt through its cash from
operating activities.
e)
Cash Flows per Share
Referring
to
Carslaw
and
Mills
(1991,
p.67)
cash
flow
per
share
is
commonly used by enterprises to analyze the amount of cash from operating
activities
allocated
to
each
ordinary shares.
Cash
flows
per
share
can
be
calculated with the following formula
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