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How are Cash Flow Ratios Compiled ?

What is Cash Flow ?

Cash flow is the ability of a business firm to pay its debt obligations and to expand its business operations using its net earnings plus depreciation. This is an extremely important finance function since cash is the lifeblood of any on-going business concern. Without adequate cash flow, even a profitable company could conceivably go out of business. Basically, a company needs cash to sustain its ability to stay in business.

At USBR, we've coined the term "cash flow ratios" to refer to ratios used to calculate a firms' ability to pay future debt obligations. We believe this will give the reader a new and insightful way of assessing a company's financial strength.

EBITDA to Sales = (EBITDA) / Sales

FFO to Total Debt = (FFO) / Total Debt

Total Debt to EBITDA = ( Total Debt / EBITDA )