Let us understand the Operating Cash Flow ratio first. When you sell goods you give credit and create debtors as assets in the current assets segment of your balance sheet. Similarly, when you buy inventories you get credit and create creditors as current liabilities on the left side of your balance sheet. This is part of the core working capital management of the company. The operating cash flow ratio tells you very quickly about the volume of cash you are generating compared with the amount you will have to pay out. This ratio basically tells you if the cash flows generated are good enough to pay your creditors on time and enjoy a good credit standing. The operating cash flows are normally compared with the current liabilities and shows how smartly and efficiently the working capital of the company is churned to generate results.

We now come to the net profit margins of the company. It is the bottom line and measures how your profits after tax (PAT) stack up against the total sales generated. The net profit margin or the NPM is the ratio of the net profits to the sales and here again the trend is important. A positive trend is always favourable and above-industry averages are always welcome.