Reading Financial Reports For Dummies
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You're interested in a company, so you're reading its financial reports. Part of the test of a viable operation is having enough cash to keep the company going. Use the following formulas to make sure a company has plenty of cash to keep operating.

  • Free cash flow shows you how much money a company earns from its operations that can actually be put in a savings account for future use.

    Free cash flow = Cash provided by operating activities – Capital expenditures – Cash dividends

  • Cash return on sales looks specifically at how much cash is being generated by sales.

    Cash return on sales = Cash provided by operating activities divided by Net sales

  • Current cash debt coverage ratio lets you know whether a company has enough cash to meet its short-term needs.

    Current cash debt coverage ratio = Cash provided by operating activities divided by Average current liabilities

  • Cash flow coverage ratio finds out whether a company has enough money to cover its bills and finance growth.

    Cash flow coverage ratio = Cash flows from operating activities divided by Cash requirements

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About the book author:

Lita Epstein, who earned her MBA from Emory University’s Goizueta Business School, enjoys helping people develop good financial, investing and tax-planning skills.
While getting her MBA, Lita worked as a teaching assistant for the financial accounting department and ran the accounting lab. After completing her MBA, she managed finances for a small nonprofit organization and for the facilities management section of a large medical clinic.
She designs and teaches online courses on topics such as investing for retirement, getting ready for tax time and finance and investing for women. She’s written over 20 books including Reading Financial Reports For Dummies and Trading For Dummies.
Lita was the content director for a financial services Web site,, and managed the Web site, Investing for Women. As a Congressional press secretary, Lita gained firsthand knowledge about how to work within and around the Federal bureaucracy, which gives her great insight into how government programs work. In the past, Lita has been a daily newspaper reporter, magazine editor, and fundraiser for the international activities of former President Jimmy Carter through The Carter Center.

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