A liquidity and solvency ratio that measures a company’s ability to generate cash from its operations to cover its liabilities. In other words, it relates cash from operations to current liabilities:
For example, a given company has reported $100,000 in operating cash flow and its balance sheet shows that its current liabilities are $150,000, therefore
Operating cash flow= 100,000/ 150,000=0.66
This means the company generated $0.66 from operations for every one dollar in current liabilities (which must trigger an alarm for its management to either enhance its operations or reduce reliance on liabilities).
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