Abstract:

This paper studies the possibility of using cash-flow-based ratios to improve the completeness and reliability of assessment of the company’s solvency and financial stability. These indicators are more informative and reliable for internal users and potential investors and creditors. The two indicators: cash-flow liquidity ratio (CFLR) and cash interest coverage ratio (CICR) – are compared with the conventional ratios for the assessment of solvency - current liquidity ratio (CLR) and interest coverage ratio (ICR). This study explores the financial statements of 12 Russian companies engaged in the provision of airport services during the period between 2011 and 2014. Using the correlation analysis we compared the pairs of conventional liquidity ratios and cash-flow-based ratios. Current liquidity ratio and cash flow liquidity ratio proved to be loosely correlated. Strong correlation was revealed between interest coverage ratio and cash interest coverage ratio. The study showed that using cash interest coverage ratio provides a more accurate representation of the company’s financial stability. This ratio can also be used to adjust the company’s credit rating.