Cash Flow Ratio

Significance and Formula of Cash Flow ratio

The cash flow ratio measures a firm’s ability to meet its debt obligations with cash generated in the normal course of business. 

Cash Flow Ratio = Operating Cash Flow
                                 Current Liabilities 

Higher ratios of operating cash flow to liabilities indicate a higher likelihood that the firm will be able to meet its obligations with cash generated from normal business operations. This ratio measures the ability of the company to meet its short-term obligations based on cash generated in the normal course of business. A deteriorating cash flow ratio, over time, indicates impending liquidity problems.