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This ratio tells about repayment capacity of the organization
Cash Flow from operating activities = Company's net income + non-cash expenses + Changes in working capital.
Hence the coverage ratio indicated above describes the company's ability to timely pay off its current liabilities including the running interest costs from the operating activities itself i.e it provide information regarding the cash generating abilities from its core activities, a comfortable higher ratio is an indication as to ease of pressure on working capital and smooth working and timely pay offs.
The operating cash flow ratio is one of the most important cash flow ratios.
Operating cash flow relates to cash flows that a company accrues from operations to its current debt. It measures how liquidity a firm is in the short run since it relates to current debt and cash flows from operations.
If the Operating Cash Flow Ratio for a company is less than1.0, the company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.
