Years Total Debt Ratio

In terms of a cash flow, the indicator of Years Total Debt is a derived indicator of the Debt Coverage Ratio and determines the number of days the company needs to repay its debts.

Alternative names for the Years Total Debt:

  • Years Total Debt,
  • Calculation Period for Total Debt Ratio

What Does the Years Total Debt Show?

The indicator reflects the amount of time necessary to repay the entire debt at the expense of the operating cash flow. It is calculated to assess the level of enterprise’s solvency and financial independence. Experts also calculate the indicator by means of a net cash flow, if only the enterprise’s capital is not formed according to a share or a joint-stock method.

Formula of the Years Total Debt

YTD = 360 / (Operating Cash Flow / Total Debt), days

or

YTD = Total Debt / (Operating Cash Flow – Dividends)

Normative Value of the Years Total Debt

A low value is preferable for the enterprises. There is no normative in this case, because the larger the investments into a business, the longer the payback period. However, it’s necessary to understand the amount of average debt for medium-sized businesses should not exceed 2-3 years. It is this period which is necessary to implement an investment program and start receiving economic benefits from it. Indicators are compared to the average values for similar enterprises.