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Eat at My Restaurant - Cash Flow

In: Business and Management

Submitted By Owenpoo1
Words 1022
Pages 5
Cash is vitally important in the business world. Without it, no firm will survive fowor long. Consequently, understanding a company’s cash inflows and cash outflows is critical for investors. The statement of cash flows provides a revealing examination of these flows, i.e. how a company makes and spends their cash. Furthermore, the cash flow ratios that can be computed from the statement of cash flow can be very telling. The case study entitled, “Eat at M Restaurant - Cash Flow” analyzes several cash flow ratios of three restaurant companies.
The statement of cash flows classifies cash receipts and cash payments into operating, investing, and financing activities. However, with consideration to the long-term profitability of a company, the net cash provided by operating activities may be the most significant. Essentially, it is the amount of cash generated by the company from its main operations. These funds not only fund the business, but also keep the company alive when times are tough in the investing and financing world. Therefore, from an investor’s standpoint, it is imperative that cash flow from operations represents a substantial portion of a company’s profits or net income.
The first restaurant company examined, Yum Brands, Inc., experienced a sharp decline in their operating cash flow/current maturities of long-term debt and current notes payable. This ratio indicates a firm’s ability to meet the current maturities of debt. The higher the ratio, the better the firm’s ability is to meet current maturities of debt (Gibson, 2013). However, Yum Brands Inc. did enjoy a rise in their operating cash flow/total debt ratio. This ratio indicates that cash flow is significant in relation to total debt in both years. In addition, the operating cash flow per share was also on the rise. The operating cash flow per share represents the net cash a firm

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