Explanation:
There are a few different ways to calculate the cash flow coverage ratio formula, depending on which cash flow amounts are to be included. A general measure of the company’s ability to pay its debts uses operating cash flows and can be calculated as follows:
- Cash flow coverage ratio = $80,000,000 / $38,000,000 = 2.105
- Cash flow coverage ratio = ($64,000,000 + $4,000,000 + $8,000,000) / $38,000,000 = 2
