Cash Current Debt Coverage Ratio

The Cash Current Debt coverage ratio measures a companys ability to repay their current debt. Unlike the current and acid test ratio which looks at the year end balamce of assets this ratio looks at the net cash provided by operating activities.

The formula looks like this

(Cash From Operations-Dividends) / (Average current liabilities)

For example if a company had $50 million in cash from its sales, paid out $25 million in dividends, and had average current liabilities of $25 million the formula would look like this.

($50 million-$25 million)/(25 million)

That would give you a Cash Current Debt Ratio of 1. If the number is below 1 that means the company is unable to pay their current debt. If it is over 1 that means the company has excess money and is a good investment.

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Other Similar Ratios

Debt to Captial Ratio – This takes a look at the amount of debt which a specific company has and compares it to the amount of capital on hand that same company has.

PE Ratio - This ratio compares the amount of money that a specific company takes in during a year and compares it to the price of the stock to see if the stock is overvalued or undervalued.

Diluted Earnings Per Share – This Ratio attempts to tell you whether a stock is overpriced or underpriced.

Interest Coverage Ratio - This ratio is used to see a company’s ability to repay the interest on its debts.

Average collection Period - This ratio looks at how long it typically takes a company to receive payments owed to them.