Operating Cash Flow Ratio
Creditors and lenders use these ratios to analyze the company's ability to meet its payment commitments. While traditional ratios like current and liquidity ratios indicate the availability of current assets on a single day, operating cash flows reveal the cash generated over a period of time. This ratio considers the cash availability from operating activities towards meeting the current liabilities and obligations.
Current Liabilities = Current maturities of long-term debts and current notes payable.
This ratio indicates the firm's ability to meet its currently matured liabilities. Higher the ratio, better the firm's ability to meet its currently matured liabilities. Higher ratio indicates the better liquidity position of the organization. This ratio is related to liquidity ratios.
Operating cash flow ratios vary from industry to industry, since in the case of capital intensive company the cash generation from operating activities is substantially lower than in other industries.
Following is the extract taken from the annual report of Tata Steel Limited. Calculate operating cash flow to total debt ratio.
Operating cash flow to current debt = Operating Cash Flow/Current maturities of long-term debts and current notes payable
= 3,631.39/1,064.88 = 3.41 times
The company has cash flows that are 3 times more than the debt i.e. the company's debt paying capacity is covered 3 times.
Email based Accounting assignment help - homework help at Expertsmind
Are you searching Accounting expert for help with Operating Cash Flow Ratio questions? Operating Cash Flow Ratio topic is not easier to learn without external help? We at www.expertsmind.com offer finest service of Accounting assignment help and Accounting homework help. Live tutors are available for 24x7 hours helping students in their Operating Cash Flow Ratio related problems. We provide step by step Operating Cash Flow Ratio question's answers with 100% plagiarism free content. We prepare quality content and notes for Operating Cash Flow Ratio topic under Accounting theory and study material. These are avail for subscribed users and they can get advantages anytime.
Why Expertsmind for assignment help
- Higher degree holder and experienced experts network
- Punctuality and responsibility of work
- Quality solution with 100% plagiarism free answers
- Time on Delivery
- Privacy of information and details
- Excellence in solving Accounting questions in excels and word format.
- Best tutoring assistance 24x7 hours