Cash Flow to Assets

Cash flow to assets is the accounting ratio which tells us the relationship of cash flow from operation and our total assets. To find this ratio is very necessary for knowing capacity to buy new assets in case of old assets becoming scrape. For calculating cash flow to assets, we have to calculate cash flow from operation and our total assets.

1. Cash from operation 

Cash from operation  means the net profit in the form of cash which we have obtained from our business operation. In this, there will not include the cash from investing and financial activities.

2. Total Assets 

Total assets means the total value of assets side of balance sheet.

Formula of Cash Flow to Assets 

= Cash From Operation / Total Assets 

For example : a company had net cash flows from operations of $100,000 , total cash flows of $400,000, and average total assets of $1,000,000. the cash flow on total assets ratio equals:

= 10%

Now, we are explaining the indication which is telling by this ratio:

1. It means, if we have 100 $ total assets and all have become dead, we have $ 10 net profit in cash for buying all new assets. So, increasing the cash flow from operation, we can increase cash flow to assets ratio.

2. After calculating this ratio, we can start to make update our forecasting. This updates may be relating to increment in our past sales.

3. You can again evaluate your business policies. For example, you pay your supplier within 60 days and gets from your customers within 25 days. By changing this period, you can see the changes in your cash flow to assets ratio.

4. You can also motivate your sales department for improving your cash flow to assets ratio. By getting motivation, your salesmen can get more than what you had made the target in past.


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Accounting Education: Cash Flow to Assets
Cash Flow to Assets
Accounting Education
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