That syncing feeling: 6 reasons to streamline your business finances
If you need to take control of your business finances, we've compiled 6 good reasons to sync up your accounting software so you can focus on growth.
Understanding and identifying operating cash flow ratio is a crucial part of financial monitoring to ensure businesses are performing well.
Operating cash flow (OCF) ratio is a metric to help understand how liabilities are impacting a business and whether it’s in the best position to grow.
This article will look at what operating cash flow ratio is, the formula to calculate operating cash flow ratio, and examples to help you better understand the role of this metric.
Let’s first dive into what operating cash flow ratio is.
Essentially, cash flow ratio is a metric that focuses on liquidity and understanding the financial performance of a business.
Operating cash flow ratio is a measure of whether companies can pay off liabilities with the cash flow generated from business operations.
It’s easy to get it confused with operating cash flow, but there is a difference.
You can analyze operating cash flow and operating cash flow ratio using the Wise cash flow statement to better understand how your business is performing.
Get your free Wise cash flow statement
Now that a definition has been established, it’s time to look at how to calculate operating cash flow ratio.
The formula is:
Operating Cash Flow Ratio = Operating cash flow / Current Liabilities¹ ² |
---|
Let’s take each component individually to understand what number needs to be plugged in.
Operating cash flow is the cash generated through a company’s normal business operation.
Current liabilities are defined as any debt or obligation your business must pay to creditors within a year.
While operating expenses and current liabilities will differ based on the sector and industry, it’s important to understand each category to make calculating operating cash flow ratio easier.
Examples of operating cash flow can include:
wage expenses, such as if you’re paying employees overseas from within the US
any office rent and expenses for multiple locations where you’re operating
inventory storage and warehouses across different locations, etc.
Current liabilities refer to short-term financial payments businesses are obligated to make, typically within one year of a business operating cycle.
Examples can include:
supplier payments
short-term debt payments such as loans
and dividend payments to investors.
Using Wise, businesses get better oversight and control into payments and expenses.
With Wise, businesses can save up to 19x compared to PayPal while sending money with the mid-market rate, making domestic and international payments that much easier.
Wise works with you. Get paid however you need with the Wise multi-currency account. Also get local account details in multiple currencies to take the complexity out of receiving money internationally.
Plus, you can set up payments with one click. Pay employees and merchants around the world fast, with upfront, transparent fees, every time.
Open your international business account
with Wise today
Sources:
All sources checked 30 September 2021
*Please see terms of use and product availability for your region or visit Wise fees and pricing for the most up to date pricing and fee information.
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
If you need to take control of your business finances, we've compiled 6 good reasons to sync up your accounting software so you can focus on growth.
Unlock the secrets of selling on Amazon Handmade with our comprehensive guide. Learn expert tips for maximizing profits, optimizing listings, and reaching a glo
Step-by-step guide on how to start a business in Hawaii. Discover key regulations, tax insights, and tips for success in the Aloha State's unique market.
Discover the latest 2024 reviews of Square Online Store. Get in-depth insights on its usability, features, customer service, and pricing.
Our comprehensive guide on starting a business in Costa Rica. Learn about legal requirements, financial considerations, and insider tips to navigate the Costa R
Unlock the power of merchant services for your business with our comprehensive guide. Learn about payment processing, POS systems, and how to choose.