Cash Total Liabilities Coverage Ratio

Cash Total Liabilities Coverage Ratio describes the company’s ability to repay fixed costs. In this case, an operating cash flow is used for the calculations.

Alternative names for Cash Total Liabilities Coverage Ratio:

  • Fixed Costs Monetary Coverage Ratio
  • Critical Needs Coverage Ratio
  • Cash Total Liabilities Coverage Ratio
  • Cash Fixed Expense Coverage Ratio
  • Critical Needs Coverage.

What Does the Cash Total Liabilities Coverage Ratio Show?

The indicator implies the calculation of interest and all necessary fixed costs with the final date of payment in the reporting period. Fixed payments include lease payments, preferred dividends, capital expenditures, etc. The company determines the amount of fixed costs independently. Depending on what the company deals with, they may include a variety of positions.

Formula of the Cash Total Liabilities Coverage Ratio

CTLC = Operating cash flow / (Interest + Principal debt + Rent and lease payments)

CTLC = (Operating cash flow – Dividends + Interest payments + Lease payments + Rent payments) / (Repayment of principal + Interest payments + Lease payments + Rent payments)

Normative Value of the Cash Total Liabilities Coverage Ratio

The targeted value for this coefficient should exceed 1. If the value is below 1, then in case of a decrease in sales, the financial problems may arise that usually leads to a crisis at the enterprise.