Operating Cash Flow/Total Debt
This ratio indicates the firm's ability to cover total debt with the operating cash flow. The higher the ratio, better it will be to carry its total debt. It is a very important ratio from a debt standpoint. The formula for this ratio is
Operating Cash Flow/Total Debt
Total debt includes all the possible debt items in the balance sheet.
Following is the extract taken from the annual report of Tata Steel Limited. Calculate operating cash flow to debt ratio.
"The company's total debt as on 31.03.06 is Rs.5290.74 crore and cash from operating activities is Rs.3,631.39 crore."
Operating Cash Flow to Total debt = Operating Cash Flow/Total Debt
= 3,631.39/5,290.74 = 0.68
The company's operating cash flow covers 68% of the debt. The debt paying capacity from operating cash flows is more to the company.
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