What are some common investing cash flow ratios and benchmarks that you use or follow? (2024)

This ratio measures how much of a company's operating cash flow is used to fund its capital expenditures, or the purchases of fixed assets that are expected to generate future income. A high capital expenditure ratio indicates that a company is investing heavily in its business, which could signal growth opportunities or competitive advantages. However, it also means that the company has less cash available for other purposes, such as paying dividends or reducing debt. A low capital expenditure ratio suggests that a company is spending less on its assets, which could indicate efficiency or maturity, but also a lack of innovation or expansion. A typical benchmark for the capital expenditure ratio is between 10% and 30%, depending on the industry and the business cycle.

This ratio measures how much of a company's sales revenue is converted into free cash flow, or the cash that is left after paying for operating expenses and capital expenditures. A high free cash flow to sales ratio indicates that a company is generating strong cash flow from its core operations, which could imply profitability, liquidity, and flexibility. A low free cash flow to sales ratio suggests that a company is struggling to generate cash from its sales, which could imply low margins, high costs, or high investments. A typical benchmark for the free cash flow to sales ratio is between 5% and 15%, depending on the industry and the growth stage.

This ratio measures how much of a return a company is earning on its invested capital, or the total amount of money that is invested in its assets and operations. It is calculated by dividing the free cash flow by the invested capital, which can be estimated by adding the long-term debt and the shareholders' equity. A high cash return on invested capital ratio indicates that a company is creating value for its investors, as it is generating more cash than the cost of its capital. A low cash return on invested capital ratio suggests that a company is destroying value for its investors, as it is generating less cash than the cost of its capital. A typical benchmark for the cash return on invested capital ratio is between 10% and 20%, depending on the industry and the risk level.

This ratio measures how easily a company can repay its debt obligations with its cash flow, or the amount of money that flows in and out of its business. It is calculated by dividing the cash flow from operations by the total debt, which includes both short-term and long-term liabilities. A high cash flow to debt ratio indicates that a company has a strong ability to service its debt, which could reduce its financial risk and improve its credit rating. A low cash flow to debt ratio suggests that a company has a weak ability to service its debt, which could increase its financial risk and lower its credit rating. A typical benchmark for the cash flow to debt ratio is between 20% and 40%, depending on the industry and the leverage level.

This ratio measures how much of a company's cash flow is available to its shareholders, or the owners of its common stock. It is calculated by dividing the cash flow from operations by the weighted average number of shares outstanding. A high cash flow per share ratio indicates that a company is generating ample cash flow for its shareholders, which could support its dividend payments, share buybacks, or reinvestments. A low cash flow per share ratio suggests that a company is generating insufficient cash flow for its shareholders, which could limit its dividend payments, share buybacks, or reinvestments. A typical benchmark for the cash flow per share ratio is between $1 and $5, depending on the industry and the earnings level.

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

Cash Flow Analysis

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