The formula to calculate the Cash Flow to Debt Ratio is:
\[ R = \frac{OCF}{TD} \]
Where:
The cash flow to debt ratio is a financial metric that measures a company’s ability to cover its total debt with its operating cash flow. This ratio is crucial for investors and creditors as it indicates the financial health and risk level of a company. A higher ratio suggests that the company generates sufficient cash flow to meet its debt obligations, while a lower ratio may indicate potential liquidity issues.
Let's assume the following values:
Using the formula:
\[ R = \frac{500000}{1000000} = 0.50 \]
The Cash Flow to Debt Ratio is 0.50.
Let's assume the following values:
Using the formula:
\[ R = \frac{750000}{1500000} = 0.50 \]
The Cash Flow to Debt Ratio is 0.50.