Dynamic indebtedness (debt-cash flow ratio)
The dynamic indebtedness or debt-cash flow ratio establishes a relationship between a company's net debt and its cash flow from operating activities. The ratio indicates how long a company would theoretically need to fully repay its debt using the proceeds from the operating cash flow. It is calculated by dividing net debt by the cash flow from operating activities in a given financial year. The lower the debt cash-flow ratio, the better the financial stability of a company.
Deutsche Post World Net improved its debt-cash flow ratio from 2.4 years in 2005 to 1.4 years in 2006. The group thus would be able to fully repay its net debt in 1.4 years using its cash flow from operations.
- A&B Financial Dynamics