Cash flow return on sales (CFROS) is a financial ratio that measures how efficiently a company generates cash from its sales. It is calculated by dividing the operating cash flow by the net sales. Operating cash flow is the amount of cash generated by the company’s core business activities, excluding any financing or investing activities. Net sales is the total revenue minus any discounts, returns, or allowances.
CFROS can be used to evaluate the profitability and liquidity of a company, as well as its ability to fund its growth and pay dividends. A higher CFROS indicates that the company is generating more cash from its sales, which can be used to reinvest in the business, reduce debt, or reward shareholders. A lower CFROS indicates that the company is struggling to convert its sales into cash, which may indicate operational inefficiencies, high expenses, or poor credit management.
How to Calculate CFROS in Excel
To calculate CFROS in Excel, you need to have the operating cash flow and the net sales data for the company. You can either input these values manually, or use Excel formulas to retrieve them from the company’s financial statements. For example, you can use the SUM function to add up the cash inflows and outflows from the cash flow statement, or use the VLOOKUP function to find the net sales from the income statement.
Once you have the operating cash flow and the net sales data, you can use the following formula to calculate CFROS:
CFROS = Operating Cash Flow / Net Sales
You can enter this formula in any cell in Excel, and then format it as a percentage. For example, if the operating cash flow is in cell B2, and the net sales is in cell B3, you can enter the formula =B2/B3 in cell B4, and then apply the percentage format to cell B4.
Example of CFROS Calculation in Excel
To illustrate how to calculate CFROS in Excel, let us use a hypothetical example of a company that has the following data for the year 2023:
| Operating Cash Flow | Net Sales |
|---|---|
| $150,000 | $500,000 |
Using the formula =B2/B3, we can calculate the CFROS as follows:
| Operating Cash Flow | Net Sales | CFROS |
|---|---|---|
| $150,000 | $500,000 | 30.00% |
This means that the company generated $0.30 of cash for every $1 of sales in 2023.
Alternative Approaches to CFROS Calculation in Excel
There are some alternative approaches to calculate CFROS in Excel, depending on the data available and the level of detail required. For example, you can use the following formulas to calculate CFROS based on different components of the cash flow statement:
CFROS = (Net Income + Depreciation + Amortization) / Net SalesCFROS = (Cash Flow from Operations - Capital Expenditures) / Net SalesCFROS = (Cash Flow from Operations - Dividends Paid) / Net Sales
These formulas can provide more insights into the sources and uses of cash for the company, as well as its ability to maintain or grow its operations, assets, and dividends. However, they may also require more data and assumptions, and may not be consistent with the definition of operating cash flow used by the company.
