Cash Flow to Long – Term Liabilities Ratio

Cash Flow to Long-Term Liabilities shows the company’s liquidity in terms of cash flow. Operating, free and incoming cash flows can be used for estimation purposes.

Alternative names of the Cash Flow to Long-Term Liabilities:

  • CFLTL
  • Cash Flow to Long-Term Liabilities,
  • Cash Flow from Operations to Long-Term Liabilities

What Does the Indicator of Cash Flow to Long-Term Liabilities Show?

The indicator is determined as the ratio of operating cash flow to the amount of long-term loans. It shows how well the cash flow from operating activity covers long-term debts. Depending on the situation, experts use operating, net or free cash flow for the calculations. The indicator’s value is important for investors assessing direct investments, since the long-term indebtedness represents loans for the enterprise’s development and the renewal of fixed assets.

Formula of the Cash Flow to Long-Term Liabilities

The indicator is calculated as the ratio of operating cash flow to long-term liabilities of the company. The very formula looks as follows:

CFLTL = Operating cash flow / Long-term liabilities

Normative Value of the Cash Flow to Long-Term Liabilities Ratio

An enterprise may not have long-term debts at all. Therefore, it’s difficult to define the normative indicators clearly. Obviously, the funds should be sufficient to repay the loans. The higher the value of the indicator, the better for the enterprise. The ratio is estimated in dynamics or in comparison with the average industry values.