I'm looking for a way to calculate when a company's debt burden becomes too uncomfortable. I have found the operating cash flow ratio to be a decent start.
Per Investopedia, "The operating cash flow ratio is a measure of how well current liabilities are covered by the cash flow generated from a company's operations. The operating cash flow ratio can gauge a company's liquidity in the short term." It is simply calculated by the cash flow from operations over current liabilities.
What I'm confused about is how some companies consistently have a ratio below one (less operating cash flow for the year than current liabilities). I good example is Wal-Mart, who's operating cash flow ratio is constantly around 0.5 each year. How are they and companies like it paying off their yearly debts? Where are they getting the funds?
Is there a better way to understand the yearly debt burden & if it is becoming too uncomfortable? I was thinking of using something similar to the debt service coverage ratio, which lead me to the operating cash flow ratio. Thank you all!
Submitted January 20, 2018 at 11:39AM by henjsmii http://ift.tt/2Dz7GoP
