Financial Income Ratio is used to analyze the investment attractiveness of the enterprise. It describes the vector of future investments and business prospects.
Alternative names of the Financial Income Ratio:
- Financial Income Ratio
What Does the Financial Income Ratio Show?
Incoming cash flows from the financial activity include the funds of owners as well as loan funds, which are transferred to the current account and aimed at the development of the enterprise. At the same time, financial cash proceeds are the proceeds from non-current assets or financial investments that were made at the expense of owners and creditors. Thus, the indicator also shows the efficiency of using the owners’ funds. If these funds were spent on the formation of non-current assets, it indicates the availability of the long-term investments that will bring some benefits in the future.
Formula of the Financial Income Ratio
FIR = Incoming cash flow from financial activity / (Incoming investment and financial cash flows)
Normative Value of the Financial Income Ratio
The indicator can exceed or be less than 1. If the company has no income from the investment activity, the value exceeds 1. That is, the funds received from the owners are used for updating assets and their further use in the process of activity. If the assets are sold, the indicator’s value is below 1.