The surplus cash guarantee ratio is the ratio of the net operating cash flow to the net profit of the enterprise in a certain period, which reflects the degree of protection of the cash income in the current net profit of the enterprise and truly reflects the quality of the company's earnings. On the basis of the cash basis, it fully reflects how much of the current net income of the enterprise is guaranteed by cash, squeezes out the water in the income, reflects the quality of the current income of the enterprise, and at the same time, it also reflects the liquidity of the current income of the enterprise, and shows how much amount of current cash income can be obtained by various creditors of the enterprise per 100 yuan of creditors' equity at the beginning of the period, which is more powerful than the project information that is difficult to obtain according to the analysis of the quality of the current income according to the income statement。
The formula for calculating the surplus cash coverage ratio is: surplus cash coverage ratio = net operating cash flow and net profit. Among them, the net operating cash flow refers to the difference between the inflow and outflow of cash and cash equivalents generated by the operating activities of the enterprise in a certain periodNet profit refers to the net profit realized for the period determined on the accrual basis. If the net operating cash flow is negative, it means that the quality of the company's earnings has deteriorated and the debt due cannot be repaid in the current period;If the surplus cash guarantee ratio is less than 1, it means that the net profit of the enterprise is completely dependent on the net cash flow generated by operating activities, and the sustainable development ability of the enterprise is problematic without additional investment of external fundsIf the surplus cash coverage ratio is equal to 1, it means that the company's net operating cash flow in the current period is just enough to repay the current liabilities, but there is no remaining net operating cash flow to repay the principal and interest of the bondsIf the surplus cash coverage ratio is greater than 1, it means that the company's net operating cash flow for the current period is still surplus after repaying current liabilities and repaying the principal and interest of bonds.
The role of the surplus cash protection multiple is mainly reflected in the following aspects:
1.Ensure that the business has enough cash inflow to pay off various debts. The profit calculated under the accrual basis is the book profit, which must be converted into profit on the cash basis in order to accurately reflect the realizability of the company's earnings. The surplus cash coverage ratio compensates for the lack of "cash receipt" of current earnings in the ratio analysis.
2.Reflects the degree of "cash-in" of a company's earnings. The surplus cash guarantee ratio is an indicator that evaluates the quality of a company's earnings from the dynamic perspective of cash inflows and outflows. It reflects how much of the company's current net income is guaranteed by cash, squeezes out the water in the income, and reflects the quality of the company's current income. Generally speaking, when the net operating cash flow of an enterprise in the current period is higher than the net profit of the current period, its surplus cash guarantee ratio will be greater than 1.
3.The surplus cash coverage ratio can reveal the liquidity of a company's earnings and the stability or volatility of its solvency. In general, the more profitable the profit, the greater the value of the indicator;The less profitable the profit, the smaller the value of the indicator. And from a robust point of view, the maximum value of the indicator can be used as "10" to illustrate the problem.
4.The surplus cash coverage ratio can also reveal the quality of earnings. Since the surplus cash guarantee ratio not only reflects the realizability of corporate earnings, but also reflects the quality of corporate earnings to a certain extent, it can be regarded as a revision and supplement to traditional indicators.
In summary, the surplus cash coverage ratio is an important financial indicator, which can reflect the profitability quality and liquidity of the enterprise. By calculating and comparing the surplus cash guarantee ratio in different periods, we can understand the changes in the profitability and solvency of the enterprise, and provide an important reference for the enterprise to formulate business strategies and risk management.