Q34. Current debt to cash flow ratio
How is the current debt to cash flow ratio calculated?
A34.
Current debt to cash flow ratio = (A) / (B)
Where,
(A) = Current liabilities
(B) = Cash flows from operating activities
[Entity 34-a]
Current liabilities = $504,000
Cash flows from operating activities = $560,000
Current debt to cash flow ratio
= $504,000 / $560,000 = 0.9
[Entity 34-b]
Current liabilities = $756,000
Cash flows from operating activities = $630,000
Current debt to cash flow ratio
= $756,000 / $630,000 = 1.2
[Note]
Current debt to cash flow ratio is lower for Entity 34-a than for Entity 34-b.
Thus Entity 34-a is better prepared with cash flows from operating activities to pay off current liabilities than is Entity 34-b.
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