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What is Cash Flow to Debt Ratio?

The cash flow to debt ratio measures a company’s operating cash flow versus its total debt.

It is a useful tool for measuring a company’s ‘coverage,’ which looks at how well equipped a company is to meet its ongoing debt obligations (interest payments, for example) based on the amount of cash it generates through sales/service.

There are different methodologies for calculating the ratio, but the most conservative are using free cash flow as the numerator and all redeemable debt (short-term, long-term, preferred stock) as the denominator.

Generally speaking, the higher the ratio, the better.

Keywords: debt, preferred stock, cash flow, operating profits, cash flow to debt ratio, debt obligations,