Cash Flow Coverage Ratio

Key Question

Is operating cash flow adequate to meet current obligations?

Operating Cash Flow - Short Term Debt Coverage

The Cash Flow Coverage Ratio measures the ability of the company’s operating cash flow to meet its current obligations (short-term borrowings and the current portion of its long-term debt).

The operating cash flow is simply the amount of cash generated by the company from its main operations.

The larger the operating cash flow coverage, the greater the company’s ability to meet its obligations (in addition to giving the company cash flow to expand its business)

Formula:
CFCR = Operating Cash Flow / Short Term Debt Coverage

The short-term debt coverage ratio compares the total of a company’s short-term borrowings and the current portion of its long-term debt to operating cash flow.