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Dividend coverage ratio definition

Description

Dividend coverage ratio shows whether the company generates enough cash (from operating cash flow) for dividend payout. Data to calculate this ratio is collected from the stock market bulletin and cash flow statement.

Dividend is a part of company’s net income paid to the company’s shareholders, so it is obvious that this ratio mainly interests them. Also it might be interesting for those who are keen on buying company’s shares.

Norms and limitations

There are no general norms for this ratio.

Formula

Operating cash flow (OCF, cash flow from operations) is the money that a company earns from its’ core business.

Dividend is a part of company’s net income paid for company’s shareholders. Dividends are usually paid out in a form of cash, but may be expressed in other forms, such as stock and property.


Note:
Calculating this ratio dividends are uses only in cash form.