Business Loan, Personal Loans, Uncategorized



What is the Operating Cash Flow Margin?

Operating cash flow margin is a cash flow ratio which measures cash from operating activities as a percentage of sales revenue in a given period. Like operating margin, it is a trusted metric of a company’s profitability and efficiency and its earnings quality.

The cash flow margin is one of the more important profitability ratios for a company / firm. It tells how well the company / firm converts sales to cash—and cash is of critical importance because it’s required to pay expenses. The conversion of sales to cash is vital.

Profitability ratios show a firm’s overall efficiency and performance. These ratios can be divided into two types: Margins & Returns

Ratios that show Margins represent the firm’s ability to translate sales into profits at various stages of measurement.

Ratios that show Returns represent the firm’s ability to measure the overall efficiency of the firm in generating returns for its shareholders / Business Owner.

Levered free cash flow is the “free” cash flow that’s left after a business has met its financial obligations on any outstanding accrued debt. The levered cash flow is the amount of cash left over for stockholders after all financial obligations are met.

Levered Free Cash = Cash flows – Debt Obligation (Interest Payments / EMI Payment)

How Is Cash Flow Margin Calculated?

The cash flow margin is a measure of how efficiently a company converts its sales to cash. Because expenses and purchases of assets are paid from cash, this is an extremely useful and important profitability ratio. It’s also a margin ratio.

The cash flow margin is calculated for a given Month / Quarter / Year as:
Cash flows from operating activities (A) / Net Sales (B) = _______ percent
Where (A) is the free cash flow from operations and is calculated by deducting all expenses for the given term from net sales.

Working Example:

Assuming company ABC recorded the following information for 2018 business activities:
Sales = Rs. 5,000,000
Depreciation = Rs. 100,000
Working Capital = Rs. 1,000,000
Net Income = Rs. 2,000,000
And recorded the following information for 2019’s business activities:
Sales = Rs. 5,300,000
Depreciation = Rs. 110,000
Working Capital = Rs. 1,300,000
Net Income = Rs. 2,100,000
We calculate the cash flow from operating activities for the 2019 as:
Cash Flow From Operating Activities = Rs. 2,100,000 + (Rs. 110,000) + (Rs. 1,300,000 – Rs. 1,000,000) = Rs. 2,510,000
To arrive at the operating cash flow margin, this number is divided by sales: Operating Cash Flow Margin = Rs. 2,510,000 / Rs. 5,300,000 = 47.35%

Company Use

Cash flows from operating activities, which is the numerator (A), come from the statement of cash flows. Net sales come from the company’s income statement.
If a company is generating negative cash flow, this would show up as a negative number in the numerator in the cash flow margin equation. Therefore, the company is losing money even as it is generating sales revenue. It would have to borrow money or raise money through investors to continue operating.
But there’s a flip side. Generating negative cash flow for a limited period of time can have long-term beneficial results depending on where the cash is flowing. If it’s going toward expansion, this could be expected to not only balance cash flow again when the project is completed but increase it into a far more positive and profitable range.

What Is the Net Profit Margin Ratio?

The net profit margin ratio is a profitability ratio that is a margin ratio. It can be calculated by using numbers from the company’s income statement. The net profit margin is the number of rupees of after-tax profit a firm generates for each rupee of sales.
For example, if a firm generates Rs. 1,000.00/- of sales revenue and has a 5 percent net profit margin, this means it generated Rs. 50.00/- of profit.
It’s calculated as:

Net Income/Net Sales = ________ percent

Net sales are simply sales revenue with any returns and allowances subtracted out. Net income is income with all expenses subtracted out, including taxes, interest expenses, and depreciation. It is the “Bottom line.”

Meanwhile, the net profit margin indicates how well the company converts sales into profits after all expenses are subtracted out. Because industries are so different, the net profit margin is not very good at comparing companies in different industries.

Key Takeaways:

  • Keep in mind that this is not the same as the Net Income Margin, which includes non-cash transactions such as bad debt expenses and depreciation.
  • Cash Flow Margins although higher is better.
  • There is no “perfect” percentage to aim for because all companies are different.
  • A firm that shows an increasing cash flow margin from year-to-year is certainly getting stronger with time, and this is a good indicator of its probability for long-term success.
  • This is an important indicator for a banker / lender to arrive at the viability of the firm they are funding (may not be true for start – ups).
  • Negative cash flow may not mean losing money if the same is invested in new project / expansion.
  • Working Capital can be added through short term debt to capitalise on opportunities in business and is better than raising equity (helps in maintaining the cash flow margin without altering it)
  • Profit margins helps firms to calculate its profitability and bottom line.

Actionable Task:
1. Start calculating Operating Cash Flow Margins in Monthly / Quarterly / Yearly basis, this help you to keep track of the health of your business. Remember what gets measured, gets done.

2. You may take help of your auditor or financial planner to develop a simple excel sheet, where you can enter data on a monthly basis based on your current and previous year balance sheets.

3. It is advisable to calculate your bottom line on a quarterly and half yearly basis to take required course correction to achieve your financial goals for the year.

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Business Loan, Introduction, Personal Loans, Uncategorized

Do You Know The Difference Between CASH FLOW & PROFIT


Cash flow and profit are two different financial parameters, both of which are important for running a successful business.

Cash flow is how much money is going into and out of your business at a given time: the payments you are receiving and the payments you are making. Cash flow impacts how much money you actually have available at any given time.

Profit is how much financial gain your company is making on its products or services. If you are bringing in more money than it costs to run your business, you are making a profit.

Cash flow and profit are both important measures of success for a business and can affect how stable your company is. They also intersect with other important corporate issues, especially when your company grows rapidly.

What Is Cash Flow and Why Is It Important?

Cash flow is the money that flows in and out of the firm from operations, financing, and investing activities. It’s the money you have available to meet current and near-term obligations.


Cash flow is what allows you to pay your expenses on time, including suppliers, employees, rent, insurance, and other operational costs.

Insufficient cash flow means that a business cannot meet its financial obligations, such as paying suppliers or even employees. This can happen even if you are making a profit on your products and services. In a growing business, a suddenly successful product can often create a cash flow crisis.

What Is Profit and Why Is It Important?

Profit, also called net income, is what remains from sales revenue after all the firm’s expenses are subtracted.3 A business cannot survive unless it is profitable.


Profit means your business is making more money than it spends to stay in business.

Sometimes, as with cash flow, the success of a product can raise expenses, which can impact your profit. Lowering expenses may allow you to make a profit, but this requires making effective cuts that don’t compromise your ability to stay in business.

How Cash Flow and Profit Interact

Being profitable does not mean you automatically have adequate cash flow.

For example, if your product goes through a long sales chain and some of your wholesale customers don’t pay on invoices for 120 days, you can make a profit on those products but still not have the cash available. If the suppliers of the material you need to make those products expect to be paid every 15 or 30 days, you won’t have the cash you need to pay them and continue making products.

Even though your unit sales are increasing and profitable, you won’t get paid in time to pay your suppliers, meet payroll, and pay other operational expenses. If you’re unable to meet your financial obligations in a timely way, your creditors may force you into bankruptcy at a period when sales are growing rapidly.

Key Takeaways:

  • Cash flow is the actual money going in and out of your business.
  • Profit is your net income after expenses are subtracted from sales.
  • A business can be profitable and still not have adequate cash flow.
  • A business can have good cash flow and still not make a profit.
  • In the short term, many businesses struggle with either cash flow or profit.
  • Rapid or unexpected growth can cause a crisis of cash flow and/or profit.
  • Both cash flow and profit are necessary to stay in business over the long term.
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Bokdia Finance – A right funding partner for your enterprise

Our businesses are like football team, each player needs to contribute towards that winning goal.

One of the key driver for any business is finance, a right lending partner could help you never miss opportunities.

Choose Bokdia Finance as the right lending / funding partner which has more than 40+ years of experience in this field.