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A ratio of less than 1 0 might be problematic considering that the most minimal reduction in earnings could determine the company to become financially overwhelmed leading to possible complications. A current cash debt coverage ratio of 2 0 or higher is thought to be an excellent indicator of a company s financial stability.

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Unlike the acid test ratio or current ratio the current cash debt coverage ratio does not look at year end balances.

Current cash debt coverage ratio. Current cash debt coverage ratio 1 5. A cash basis ratio that accounts for the changing liabilities and cash flows that a company experiences during the course of a time period. Current cash debt coverage ratio is a measure of liquidity.

A cash debt coverage ratio below 1 0 or close to 0 on the other hand would serve as a strong warning that the financial condition of the company is bleak. The formula for the cash debt coverage ratio is a two step process. Cash provided by operating activities average total.

Current year total liabilities previous year total liabilities 2 average total liabilities. It indicates the ability of the business to pay its current liabilities from its operations. Current cash debt coverage ratio is a liquidity ratio that measures the relationship between net cash provided by operating activities and the average current liabilities of the company.

Apply the given figures to current cash debt coverage ratio. Find the cash debt coverage ratio. From the above example it can be concluded that company abc is liquid enough to cover its current debts conveniently with the annual cash generation from operating activities.

What s a good current cash debt coverage ratio. Find the average total liabilities.