Operating cash flow divided by total debt. Measures how quickly a company could repay all its debt from operating cash flow alone. Above 0.5 means the company could theoretically pay off all debt in two years from operations. Below 0.15 signals heavy debt relative to cash generation.
Formula
Description
Measures how quickly a company could repay all its debt from operating cash flow alone - a direct test of debt sustainability. Unlike interest coverage which only considers annual interest payments, this ratio addresses the principal as well. Companies with no debt score very high.
Interpretation
Above 0.5 means the company could theoretically pay off all debt in two years from operations. Between 0.2 and 0.5 is reasonable. Below 0.15 signals heavy debt relative to cash generation - the company depends on refinancing to survive.
Related Integrity Indicators
Free cash flow divided by net income. Above 1.0 means the company generates more cash than its reported profits, a hallmark of high-quality earnings. Consistently below 0.7 is a red flag.
Compares operating cash flow to net income. When cash flow exceeds earnings, the company's profits are well-supported by actual cash. This is one of the nine criteria in the Piotroski F-Score.
What percentage of revenue must be reinvested in capital assets. Below 8% is capital-light and attractive. Buffett prefers businesses that don't require large ongoing capital outlays to maintain their competitive position.
What percentage of operating cash flow is consumed by capital expenditures. The remainder is free cash flow. Below 40% leaves ample cash for dividends, buybacks, and growth investments.
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