Operating Cash Flow Ratio Template

Operating Cash Flow Ratio Template

This Operating Cash Flow Ratio template will show you how to calculate the operating cash flow ratio, deriving from the formula: operating cash flow divided by current liabilities.

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Operating Cash Flow Ratio Template Screenshot

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What is the Operating Cash Flow Ratio?

The Operating Cash Flow Ratio, a liquidity ratio, is a measure of how well a company can pay off its current liabilities with the cash flow generated from core business operations. In other words, the operating cash flow ratio shows how much a company earns from its operating activities per dollar of current liabilities. Since earnings involve accruals and can be manipulated by management, the operating cash flow ratio is considered a more accurate measure of a company’s short-term liquidity.

The operating cash flow ratio measures a company’s short-term liquidity. If the ratio is less than 1, the company generated less cash from operations than needed to pay off its short-term liabilities. This signals short-term problems and a need for more capital. A higher ratio  – greater than 1.0 – is preferred by investors, creditors, and analysts, as it means a company can cover its current short-term liabilities and still have earnings left over. Companies with a high or increasing operating cash flow ratio are generally considered to be in good financial health.

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