Recognize the result of the following formula:

Question

Cash Debt Coverage = (cash flow from operations - dividends) / total debt
This ratio shows the amount of total debt in proportion to net income
This ratio shows the percent of debt that current cash flow can retire
This ratio measures the amount of cash immediately available to satisfy short term debt
This is the amount of assets that can be quickly converted to cash

Answer 1

The formula you've provided for Cash Debt Coverage shows the relationship between cash flow from operations after accounting for dividends and total debt. The correct interpretation of this formula is:

This ratio shows the percent of debt that current cash flow can retire.

In essence, it indicates how well a company can cover its total debt obligations with the cash it generates from its operations, minus any dividends paid. A higher ratio generally suggests better financial health and the ability to repay debt with cash flow from operations.