How To Calculate Cash Flow Coverage Ratio in Oracle | Arithmix

Calculating the cash flow coverage ratio is an important financial analysis tool that helps businesses determine their ability to cover their debt obligations. It is a measure of a company's ability to generate enough cash flow to meet its debt obligations, including interest payments and principal repayments. In this article, we will discuss what the cash flow coverage ratio is, when it is valuable to calculate it, and how to calculate it.

What Is Cash Flow Coverage Ratio?

The cash flow coverage ratio is a financial ratio that measures a company's ability to pay its debts using its cash flow. It is calculated by dividing the company's cash flow from operations by its total debt service, which includes both interest payments and principal repayments. The resulting ratio is a measure of how many times the company's cash flow can cover its debt obligations. A higher ratio indicates that the company is more capable of meeting its debt obligations, while a lower ratio indicates that the company may struggle to meet its debt obligations.

The cash flow coverage ratio is an important metric for investors and lenders because it provides insight into a company's financial health and its ability to repay its debts. A company with a high cash flow coverage ratio is generally considered to be a low-risk investment or borrower, while a company with a low ratio may be considered high-risk.

When Is It Valuable To Calculate Cash Flow Coverage Ratio?

Calculating the cash flow coverage ratio is valuable in a variety of situations. For example, if a company is considering taking on additional debt, it is important to determine whether it has the cash flow to cover the additional debt service. Similarly, if a company is experiencing financial difficulties, calculating the cash flow coverage ratio can help identify whether it has the ability to meet its debt obligations.

Investors and lenders also use the cash flow coverage ratio to evaluate the financial health of a company. A high ratio indicates that the company is generating enough cash flow to cover its debt obligations, which can be a positive sign for investors and lenders. On the other hand, a low ratio may indicate that the company is struggling to generate enough cash flow to cover its debt obligations, which can be a red flag for investors and lenders.

How to Calculate Cash Flow Coverage Ratio

To calculate the cash flow coverage ratio, you will need to gather information from the company's financial statements. Specifically, you will need to know the company's cash flow from operations and its total debt service.

The cash flow from operations can be found on the company's statement of cash flows. It represents the cash generated by the company's core business operations. The total debt service includes both interest payments and principal repayments and can be found on the company's balance sheet or income statement.

Once you have this information, you can calculate the cash flow coverage ratio by dividing the company's cash flow from operations by its total debt service. For example, if a company has cash flow from operations of $1,000,000 and total debt service of $500,000, the cash flow coverage ratio would be 2. This means that the company's cash flow from operations is twice the amount of its debt service, indicating that it has a strong ability to meet its debt obligations.

In conclusion, the cash flow coverage ratio is an important financial analysis tool that helps businesses determine their ability to cover their debt obligations. By calculating this ratio, investors and lenders can gain insight into a company's financial health and its ability to repay its debts. To calculate the cash flow coverage ratio, you will need to gather information from the company's financial statements and divide the cash flow from operations by the total debt service.

How Do You Calculate Cash Flow Coverage Ratio in Oracle

Oracle itself isn’t naturally geared towards letting you calculate complex metrics like Cash Flow Coverage Ratio. As an alternative, teams typically use products like Arithmix to import data from Oracle and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Oracle, combine it with data from other systems, and create calculations like Cash Flow Coverage Ratio.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Cash Flow Coverage Ratio in Arithmix

Calculating metrics like Cash Flow Coverage Ratio is simple in Arithmix. Once you've created your free account, you’ll be able to import your Oracle data, and use it to create natural language formulas for metrics like Cash Flow Coverage Ratio.

Arithmix is designed to give you the power to build any calculations you want on top of your Oracle data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.