Understanding Cash Flow from Operations to Debt Ratio
Cash Flow from Operation (CFO) to Debt Ratio indicates how much time it will take for the company to meet its debt obligations by its cash flow from operations.
The ideal CFO to Debt ratio is 1. A high ratio indicates that the company's earnings from its operating activities are more than its debt. And low ratio indicates low operating cash flow than debts, and the company may not be able to meet its debt obligation.
The formula for Calculating Cash Flow from Operations to Debt Ratio
Example: For the financial year Asian Paint Limited reported cash flow from operation as Rs.3683.35 Cr. and total debt as Rs. 340.23 Cr.
The value as per the formula (Cash Flow from Operation / Total Debt) is calculated as (3683.35 / 340.23) = 10.83.