79.0k views
4 votes
Long term debt coverage ratio assesses whether a company can pay back long term debts with the annual cash flows from operations. What is its formula?

User Oi
by
8.8k points

1 Answer

3 votes

Final answer:

The long-term debt coverage ratio is used to assess a company's ability to repay its long-term debts with annual cash flows from operations. It is calculated by dividing annual cash flows from operations by long-term debt. A ratio greater than 1 indicates sufficient cash flow to cover debts.

Step-by-step explanation:

The long-term debt coverage ratio is a financial ratio that assesses a company's ability to repay its long-term debts using its annual cash flows from operations. The formula for calculating the long-term debt coverage ratio is:

Long-Term Debt Coverage Ratio = Annual Cash Flows from Operations / Long-Term Debt

This ratio helps determine if a company generates enough cash flow to cover its long-term debt obligations. A ratio greater than 1 indicates that the company is generating sufficient cash flow to cover its debts, while a ratio less than 1 suggests potential difficulties in repaying its long-term debts.

User Everaldo Aguiar
by
7.7k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories