Operating Cash Flow Ratio Calculator: Can Cash From Operations Cover Current Liabilities?

How it works

Operating cash flow ratio = cash flow from operations ÷ current liabilities · operating cash flow = net income + depreciation & amortization + other non-cash items − increase in working capital · TTM operating cash flow = sum of the last four quarters · average current liabilities = (ending + beginning) ÷ 2

The operating cash flow ratio asks whether the cash a business generates from its day-to-day operations over a year would be enough to pay every bill due within the next year. A ratio of 1.0 means operating cash flow exactly equals current liabilities; above 1.0 there is cash to spare, below 1.0 the company leans on its cash balance, collections or new borrowing to stay current. It complements the current ratio and the cash ratio, which compare current liabilities with balance-sheet assets at one moment. Assets such as inventory and receivables may be slow to turn into cash; operating cash flow is money actually collected, which is why lenders and analysts often trust this ratio more. You can enter reported operating cash flow, rebuild it from net income with the indirect method, or add up the last four quarters for a trailing-twelve-month figure. Under More options you can average current liabilities over the year, compare with the current ratio, add total debt for the cash flow to debt ratio and subtract capital spending for a stricter free-cash-flow version. The Strong, Adequate, Thin and Weak readings (1.5 and above, 1.0 to 1.5, 0.5 to 1.0, below 0.5) are rules of thumb, not standards; healthy norms differ by industry.

Worked example

A company generated $4,800,000 of cash from operations last year and has $3,200,000 of current liabilities. The operating cash flow ratio is $4,800,000 ÷ $3,200,000 = 1.50, so a year of operating cash flow covers its short-term obligations one and a half times, leaving $1,600,000 to spare. Put another way, about 3,200,000 ÷ 4,800,000 × 12 = 8.0 months of operating cash flow would pay off all current liabilities. Building OCF from net income gives the same figure: $3,000,000 + $1,500,000 depreciation + $500,000 other non-cash items − $200,000 increase in working capital = $4,800,000.

Sources: Omni Calculator: Operating cash flow ratio (Skyworks and Cirrus Logic TTM examples) · Wall Street Prep: Operating cash flow ratio (worked example) · Corporate Finance Institute: Operating cash flow ratio, interpretation

Frequently asked questions