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OCF to debt ratio definition

Description

OCF to debt ratio shows the proportion between the money from operating cash flow and the amount of total debt. Also this ratio indicates the percentage of the debt that can be covered from operating cash flow. Data to calculate this ratio is collected from balance sheet and cash flow statement.

OCF is important for creditors as it shows how many times a company’s debt can be covered by its’ earnings from the main activity.

Norms and limitations

A low ratio might indicate large debts or too small cash flows from operations.

It is recommended to compare this ratio with ratios of companies working within the same industry.

Formula

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

Debt (total debt, total liabilities) is calculated adding together long term debt with short term debt. These two measures can be easily located on the balance sheet.