Another US-based writer， Yuji Ijiri， has noted the paradox between the way in which investment decisions are made by business and other entities and the way in which the results of those decisions are evaluated. The principal focus for informed investment decisions is cash flows， whether the capital project appraisal method is ?payback? or one of the more sophisticated discounted cash flow-based techniques， namely ?net present value? and ?internal rate of return?. Turning to performance evaluation， however， the emphasis usually shifts to techniques such as return on investment.The inconsistency between the two approaches is highlighted by the use of depreciation cost allocation for computing ROI; a calculation which has no place whatsoever in the above project appraisal methods. Ijiri persuasively argues， therefore， the importance of making project appraisal and performance evaluation consistent

　　· ratios which link the cash flow statement with the two other principal financial statements;

　　· ratios and percentages based entirely on the contents of the cash flow statement.

　　To illustrate the calculations， the results of Tamari plc for 1998 and 1999 appear in Figure 1. For each ratio is presented both the calculation and a discussion of its significance. Inevitably， there will be some overlap in the messages conveyed by the various ratios presented. This may be due to similarities in the nature of the calculations or to the fact that the results of just one company are used for illustration purposes. The application of the same ratios to different financial facts might well yield additional valuable insights.

　　Ratios which link the cash flow statement with the two other principal financial statements

　　Cash flow from operations to current liabilities

　　Cash flow from operations to current liabilities

　　= Net cash flow from operating activities x 100

　　Average current liabilities

　　Where：

　　Net cash flow from operating activities is taken directly from the cash flow statement published to comply with FRS 1. Average current liabilities are computed from the opening and closing balance sheet.

　　This ratio examines the liquidity of the company by providing a measure of the extent to which current liabilities are covered by cash flowing into the business from normal operating activities. The ratio is thought to possess some advantage over balance sheet-based ratios such as the liquidity ratio as a measure of short-term solvency. This is because balance sheet ratios are based on a static positional statement (the ?instantaneous financial photograph?) and are therefore subject to manipulation by， for example， running down stock immediately prior to the year end and not replacing it until the next accounting period. Balance sheet based ratios may alternatively be affected by unusual events which cause particular items to be abnormally large or small. In either case， the resulting ratios will not reflect normal conditions.

　　Cash recovery rate

　　Cash recovery rate (CRR)=

　　Cash flow from operations x 100

　　Average gross assets

　　Where：

　　Cash flow from operations is made up of ?net cash flow from operating activities? together with any proceeds from the disposal of long-term assets. Gross assets is the average gross value of the entity?s assets.

　　Assets are required to generate a return which is ultimately， if not immediately， in the form of cash. The CRR is， therefore， a measure of the rate at which the company recovers its investment in fixed assets. The quicker the recovery period， the lower the risk. You may have noticed that the CRR is thus the reciprocal of the pay back period used for capital project appraisal purposes assuming projects have equal (or roughly equal) annual cash flows.

　　Cash flow per share

　　Cash flow per share =

　　Cash flow

　　Weighted average no. of shares

　　Ratios which link the cash flow statement with the two other principal financial statements