Thursday, February 12, 2009

Cash Debt Coverage Ratio

What is the Cash Debt Coverage Ratio?

In accounting terms, the Cash Debt Coverage Ratio is the ratio of net cash provided by operating activities by the company to average total liabilities

This is called the cash debt coverage ratio because it is a cash-basis measure of solvency. This ratio indicates a company’s ability to repay its current liabilities from cash generated from operating activities. This ratio is of particular importance because the company can pay back its liabilities without having to liquidate the assets that it currently uses in its operations.

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