Introduction Optional Reading Workshop Content - Bivio

Workbook.RAW - LiquidityThey discuss a ratio I'd not heard of before called the Flow Ratio orthe Foolish Flow Ratio.It is defined as (Current Assets - Cash) / Current LiabilitiesTheir idea is that the best companies have low receivables andInventories and high payables. The first two are assets and the latteris a liability.It appears to be a measure of management's quality rather thanliquidity.Low receivables and inventory show a company in control of its destiny.These are usually monitored by two other ratios, Days sales outstandingand Days sales in inventory.High Payables shows that the company is in a position to delay paymentsto the companies it buys from.A ratio below 1.25 is considered good and the lower the number thebetter.This seems like the Return on Equity ratio that monitors severalother ratios (net profit margin x asset turnover x leverage).Has anyone had any experience with this ratio?Does it seem valuable?What do you think?Gary++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++From: Jay Berry Subject: Re: Ratio Analysis Workshop-Part 7To: I-CLUB-LIST Date: Tue, 3 Feb 1998 10:07:24 -0500Gary Simms posted:>> Their idea is that the best companies have low receivables andinventories and high payables ...Low receivables and inventory show acompany in control of its destiny.High Payables shows that the company is in a position to delay paymentsto the companies it buys from.A ratio below 1.25 is considered good and the lower the number thebetter.