Private Equity Investments in the Sports World
Sporting franchises across the world have traditionally been owned by wealthy individuals. This has largely been because of the fact that sporting franchises have been viewed less as financially viable investments and more as vanity toys. However, all this has started changing in the wake of stellar returns provided by sporting franchises in the recent […]
The “WeWork” Business Model
The name WeWork is now a known brand name for millennials around the world. This is a remarkable feat given that the company is relatively nascent. WeWork has become so popular that it is the fourth highest valued start-up in the world, just behind companies like Uber. This valuation is largely the result of huge […]
Demystifying the Mysterious, Glamorous, and Demanding World of Investment Banking
The Lure of Investment Banking and Why is it so for Management Practitioners All aspiring management students as well as career professionals’ dream of working in either a management consultancy or an investment bank during their education and working life. Indeed, asks any MBA (Masters of Business Administration) student about their dream jobs, chances are […]
External Credit Enhancement in Infrastructure Financing
Infrastructure projects continue for a long period of time. Sometimes these projects continue for decades. Hence, they need long term finance. On the other hand, there are entities such as insurance companies and pension funds which are looking to invest their money for long periods of time. Ideally, insurance companies and pension funds should be […]
Financial Models for Startups
Planning is an essential function that the founder of a startup company needs to perform. However, this planning is often done informally. If a startup founder is not reaching out to investors to raise funds, there is a very low chance that they will have a well-documented financial model in place. However, empirical data shows […]
Cash Flow to Debt Ratio = Operating Cash Flow/Total Debt
The cash flow to debt ratio tells investors how much cash flow the company generated from its regular operating activities compared to the total debt it has. For instance if the ratio is 0.25, then the operating cash flow was one fourth of the total debt the company has on its books. This debt includes interest payments, principal payments and even lease payments to cover off balance sheet financing.
However, this may not be the case. Companies have access to a variety of financing schemes. Some of these schemes include interest only payments, bullet payments, balloon payments, negative amortization, so on and so forth. In such innovative amortization, there may be years when the company has to pay a lot of interest and other years when it has to pay none. Hence the present years figures may not be indicative of the future.
Earlier analysis used earnings because at that time credit periods were small or nonexistent and therefore earnings to some extent meant cash flow. However, with the proliferation of credit, the distinction has been widened.
A company may book earnings immediately and not receive cash for years on end. Thus creditors have their eyes set on cash flow ratios.
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