How is the current debt to cash flow ratio calculated?



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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