Ratio of Operating Cash Flow to Current Debt Obligations
The Ratio of Operating Cash Flow to Current Debt Obligations
places emphasis on cash flows to meet fixed debt obligations. Current maturities
of long-term debts along with notes payable comprise our current debt
obligations. We can refer to the Statement of Cash Flows for operating cash
flows. Therefore, the Ratio of Operating Cash Flow to Current Debt Obligations
is calculated as follows:
Operating Cash Flow / (Current Maturity of Long-Term Debt +
Notes Payable)
EXAMPLE - We have operating cash flow of $ 100,000, notes
payable of $ 20,000 and we have $ 5,000 in current obligations related to our
long-term debt. The Operating Cash Flow to Current Debt Obligations Ratio is $
100,000 / ($ 20,000 + $ 5,000) or 4.0. We have 4 times the cash flow to cover
our current debt obligations.
