Question

All of the following are used to evaluate a company’s cash-generating efficiency (ability to generate cash from operations) except:

A. Cash flow yield

B. Cash flow to cost benefit

C. Cash flow to sales

D. Cash flow to assets

E. Free cash flow

Answer 1

Answer: B. Cash flow to cost benefit

Interpreting the statement of cash flows includes examining fundamental relationships such as cash-generating efficiency and free cash flow. Cash-generating efficiency, which focuses on net cash flows from operating activities, is the ability of a company to generate cash from operations. Three measures of cash-generating efficiency are cash flow yield, cash flows to sales, and cash flows to assets.

1. Cash flow yield is the ratio of net cash flows from operating activities to net income.

2. Cash flows to sales are the ratio of net cash flows from operating activities to net sales.

3. Cash flows to assets are the ratio of net cash flows from operating activities to average total assets.

4. Free cash flow is the cash remaining after the company has met current operating commitments, such as those for operations, interest, income taxes, dividends, and net capital expenditures

Hence, as above Cost benefit is nowhere related to Cash flow from operating activity it has to exclude for evaluating cash generating efficiency.

Cash flow to cost benefit

Cost-Benefit Analysis (CBA) is a critical activity in the work of a business analyst. While many business analysts may be brought onto a project well after this activity has occurred, nearly all projects which require a large amount of resources (time, people, or money) are assessed based on the CBA of the project. The activity is typically performed by a business analyst, often one specializing in the area of financial analysis, though any business analyst can learn this straightforward activity.

The most prominent and well known aspect of CBA is Discounted Cash Flow (DCF) analysis which discounts future cash flows (both negative and positive) using a Discount Rate to arrive at a Net Present Value (NPV).