Thecash flow-to-total debt ratioassesses a company's ability to repay its debts using cash generated from its operating activities. It is calculated by dividing operating cash flow by total debt. A higher ratio indicates better capacity to cover debts. This metric is crucial for evaluating financial health and understanding a firm's liquidity position. Other ratios listed have different focuses:
Interest coverage(B) measures a company’s ability to pay interest with operating income.
Asset coverage(C) measures the protection provided to creditors.
Debt-to-equity(D) evaluates capital structure but not immediate debt repayment ability.
References
CSC Volume 2, Chapter 14:Company Analysis - Risk Analysis Ratios, p. 14-12 to 14-16.
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