Corporate Finance For Dummies
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The ratio of operating cash flows to current maturities utilizes the cash flows a company generates from its operations to determine its ability to pay any debts that are maturing within the next year. This ratio is different from the other liquidity metrics in this section in two important ways:

  • It determines whether a company can pay debts by using the cash flows it generates rather than the assets it has on hand.

  • It measures the company’s ability to pay off any liabilities that are going to be due within the next 12 months rather than just current liabilities.

In a way, this ratio determines a company’s ability to keep its cash flows liquid rather than its assets. You measure it like this:


Follow these steps to use this equation:

  1. Find operating cash flows in the statement of cash flows and long-term debt and notes payable in the liabilities portion of the balance sheet.

  2. Add together the long-term debts and notes payables that are going to mature within the next 12 months.

  3. Divide operating cash flows by the answer from Step 2 to get operating cash flows to current maturities.

As with the other liquidity metrics, the goal of this calculation is to determine whether a company will be able to pay off the debts that are due within a year. A higher ratio indicates that the company is at low risk of defaulting on its debts, while a low ratio may mean that the company is at risk of defaulting.

Operating cash flows aren’t as dependent on asset management as either receivables or inventories, so this metric can be more dependable, particularly for those investors who are considering providing the company a loan or purchasing its bonds.

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Kenneth W. Boyd has 30 years of experience in accounting and financial services. He is a four-time Dummies book author, a blogger, and a video host on accounting and finance topics.

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