Short-Term Debt Coverage Ratio (STDCR)

Short-Term Debt Coverage Ratio shows the liquidity of an enterprise in terms of cash flow. Apart from the operating cash flow, free and incoming cash flows can be used for estimation purposes.

Alternative names of the Short-Term Debt Coverage Ratio:

  • Coefficient of coverage of short-term debt
  • Coefficient of coverage of short-term debt
  • Short-Term Debt Coverage Ratio
  • STDCR

What Does the Short-Term Debt Coverage Ratio Show?

The indicator is determined as the ratio of operating cash flow to the sum of short-term loans. That is, it shows how well the cash flow from operating activity covers short-term debts. The indicator is usually calculated on the basis of the free cash flow, but depending on the situation, it’s possible to use operating or net cash flow.

Formula of the Short-Term Debt Coverage Ratio

STDCR = Operating cash flow / Short-term liabilities

STDCR = Net cash flow / Short-term liabilities

STDCR = Free cash flow / Short-term liabilities

Normative Value of the Short-Term Debt Coverage Ratio

Normative value of the indicator should be below 0.5. It means the company needs to attract a third-party financing in order to repay the short-term debt. The situation is approaching a crisis and is undesirable for the enterprise.