Current Cash Debt Coverage Ratio

Current Cash Debt Coverage Ratio is a cash-basis ratio used to evaluate liquidity, calculated as cash provided by operations divided by average current liabilities. 

Current Cash Debt Coverage Ratio

Current Cash Debt Coverage Ratio is a cash-basis ratio used to evaluate liquidity, calculated as cash provided by operations divided by average current liabilities. 


Current Cash Debt Coverage Ratio Formula

The formula for Cash Debt Coverage Ratio is the ratio of net cash provided by operating activities to average current liabilities

The two components of the formula are net cash provided by operating activities and average current liabilities. The net cash provided by operating activities is the net cash generated from its operations during a particular period. The average current liabilities are equal to opening liabilities plus closing liabilities divided by two.

Current Cash Debt Coverage Ratio Interpretation

Unlike the acid-test ratio or current ratio, the current cash debt coverage ratio does not look at year-end balances. Instead, the ratio is calculated by taking the net cash provided by operating activities and dividing it by the average current liabilities.

A higher Current Cash Debt Coverage Ratio indicates a better liquidity position. Generally a ratio of 1 : 1 is considered very comfortable because having a ratio of 1 : 1 means the business is able to pay all of its current liabilities from the cash flow of its own operations.

Current Cash Debt Coverage Ratio is similar to another metric called Cash Debt Coverage Ratio.  The latter ratio utilizes average total liabilities as opposed to average current liabilities.

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