Ratio Analysis

Operating Cash Flow to Current Liabilities

This measure tests the ability to pay one's current liabilities using operating cash flow. This ratio is another liquidity test.

The operating cash flow to current liabilities is the third liquidity ratio used in RatioAnalysis.net. It is a little different to the other two in that it pulls data from the cash flow statement as opposed to just relying on balance sheet inputs. There are some advantages to this approach aside from the obvious fact that using another statement by implication adds another dimension to our insight.

One of the major advantages to using operating cash flow & the cash flow statement input is the idea that all liabilities should ideally be paid by the internal cash-generation capabilities of the business. By this I mean that just banking cash to pay bills later is not why businesses function, it is much better to pay your bills via generating cash in the core operations. After all, there is only (ideally) cash in the bank after a business earns and deposits it. You don't always want to have to liquidate current assets to pay liabilities when you can't replenish the current assets via operations.

While there are advantages to using cash flow from operations in a liquidity ratio, there is a major disadvantage. Operating cash flow is a backward-looking measure based on operations from the period just passed. Balance sheet items are based on items we hold today. That is, we can always meet our liabilities based on what we have today but not necessarily from cash we generated up to 12-months ago passed.

To put it simply, an Operating Cash Flow to Current Liabilities result of 5.7 (for example) means that there was 5.7 times operating cash flow as there are current liabilities. In theory you could pay your current liabilities 5.7 times over using your operating cash flow.

Operating Cash Flow to Current Liabilities Formula

Operating Cash Flow / Current Liabilities

Operating Cash Flow to Current Liabilities Calculator

The calculator asks for:
Operating Cash Flow, this is found in the cash flow statement.
Current Liabilities, this one is found on the balance sheet.

Operating Cash Flow ($):

Current Liabilities ($):

Operating Cash Flow to Current Liabilities:

Want to know more about the Ratios used in the S&P500 stock calculations, including all formulas?
Check out their individual ratio pages via the main menu for Descriptions, Calculators & Formulas

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