Laskina L.Yu. ITMO University, St. Petersburg, Russian Federation firstname.lastname@example.org
Importance The article investigates cash-flow based ratios, namely the cash flow ratio and cash interest coverage ratio (CICR), and their applicability to provide a more complete and accurate description of company solvency and financial stability. Objectives The aim is to explore the role of cash flows as an additional source of information in managing the company solvency. Methods The study rests on financial statements of twelve Russian companies providing airport services. I compared the cash flow ratio and the cash interest coverage ratio with 'traditional' ratios, like current ratio and interest coverage ratio (ICR) respectively. The correlation analysis revealed relationships between the said pairs of ratios. Results The study shows that the relationship between the current ratio and the cash flow ratio is weak. It is more informative and reliable for both internal users and potential investors and lenders to use a 'cash-based' ratio from the other pair of ratios, namely, cash interest coverage ratio and interest coverage ratio. Due to their high correlation, CICR can be used more extensively in the analysis of financial condition. Conclusions The use of CICR in addition to ICR will not only provide a better understanding of company's financial stability, but can also be considered to update its credit rating; the CICR-based credit rating will be more reasonable and reliable.
Keywords: solvency, current liquidity ratio, cash flow ratio, credit rating
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