Cash Maturity Coverage Ratio

Cash Maturity Coverage Ratio shows the liquidity of the enterprise in terms of cash flow. Operating, free and incoming cash flows can be used for estimation purposes.

Alternative names of Cash Maturity Coverage Ratio:

  • Cash Maturity Coverage Ratio;
  • MCR.

What Does the Cash Maturity Coverage Ratio Show?

The indicator shows the debt burden on the operating cash flow. It’s the company’s ability to repay short-term liabilities of long-term loans. The coefficient is used to take decisions on the attractiveness of long-term funds. Experts recommend to use it when planning and developing a company’s financial policy.

Formula of the Cash Maturity Coverage Ratio

CMCR = (Operating Cash Flow – Dividends) / Current Long-term Debt

CMCR = (Net Cash Flow – Dividends) / Current Long-term Debt

Normative Value of the Cash Maturity Coverage Ratio

For all ratios of coverage, the analysis of results is carried out according to the following rule: the greater the value of these indicators, the more stable the financial position of the enterprise. However, it is the enterprise’s ability to repay long-term loans in a timely manner that allows creditors assess the reliability of the partner and take decision on financing the company’s investment programs in the future.