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Operating Cash Flow Ratio


The Operating Cash Flow Ratio is a financial metric that evaluates a company’s liquidity and its capability to cover its short-term liabilities using the cash generated by its regular operations. It is determined by dividing cash flows from operations by a company’s total current liabilities. This result shows how many times a company can repay its current debt using the cash it has generated in a single period.


The phonetics of “Operating Cash Flow Ratio” would be:Operating: /ˈɑː.pə.reɪ.tɪŋ/Cash: /kæʃ/Flow: /floʊ/Ratio: /ˈreɪ.ʃioʊ/

Key Takeaways

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  1. Definition: Operating Cash Flow Ratio is a measure of a firm’s liquidity, indicating the number of times a company can cover its short-term liabilities with cash generated in the same time period. It’s important for assessing the short-term financial health of a business.
  2. Calculation: Operating Cash Flow Ratio is calculated by dividing the Operating Cash Flow by the Current Liabilities. A higher ratio indicates a better ability to cover its current liabilities.
  3. Usage: The ratio is commonly used by investors, creditors, and financial analysts to determine a company’s liquidity, financial health, and efficiency. It can also be a powerful tool in identifying potential financial risks or issues before they become serious problems.



The Operating Cash Flow Ratio is a crucial financial metric in business as it measures a company’s ability to cover its short-term liabilities with the cash flow from its core business operations. This ratio provides deep insights into the financial health and liquidity of the business because it explicitly shows how well the company can generate enough cash to pay off its debt and expenses within a year. A higher cash flow ratio generally indicates that the company has better liquidity, making it more attractive to investors and creditors. It’s an essential tool in financial analysis to assess the company’s efficiency in managing cash inflows and outflows, potential risks, and financial stability.


Operating Cash Flow Ratio is an essential financial tool used by businesses and investors to gauge the financial health and operational efficiency of a business. Its primary purpose is to measure the ability of a company to pay its current liabilities from the cash generated through its regular business operations, not through any secondary investments or financing. This ratio provides a realistic view of a company’s liquidity position and is often used in financial analysis to determine whether a company can maintain its operations without additional financing or investment.In essence, the Operating Cash Flow Ratio is crucial for businesses, creditors, and investors to understand the company’s capacity to settle short-term financial obligations using operational income. Higher ratios typically signify a higher ability of the business to pay off its debts, suggesting a more secure financial situation. On the other hand, a lower ratio may indicate potential difficulties in meeting these obligations, which could lead to financial distress. Thus, this ratio serves as a significant indicator of financial stability and operational effectiveness in business performance evaluation.


1. Apple Inc: Apple is one of the most profitable companies in the world. If we take a look at their financial report from 2019, they had an operating cash flow of about $69.4 billion. With their current liabilities for the same year being around $105.7 billion, their operating cash flow ratio would be 0.66. This means they were able to cover 66% of their current liabilities in 2019 with the cash they generated from their operations.2. Walmart Inc: For the fiscal year 2019, Walmart’s operating cash flow was $27.8 billion, and its current liabilities amounted to $78.5 billion. This gives them an operating cash flow ratio of around 0.35, indicating their ability to cover 35% of their current liabilities from their operational cash flow.3. Inc: In recent years, Amazon has seen an impressive improvement in its operating cash flow. In 2019, they reported an operating cash flow of around $38.5 billion. If we consider their current liabilities of about $87.4 billion, Amazon’s operating cash flow ratio would be around 0.44. This means that in 2019, Amazon could cover 44% of their current liabilities with the cash from its operating activities.

Frequently Asked Questions(FAQ)

What is the Operating Cash Flow Ratio?

The Operating Cash Flow Ratio is a financial metric that shows the efficiency of a company’s operating cash flow in covering its current liabilities. This ratio is an indication of a company’s short-term liquidity, with a higher ratio indicating a better ability to cover short-term debts.

How is the Operating Cash Flow Ratio calculated?

The Operating Cash Flow Ratio is calculated by dividing the cash flow from operations by current liabilities. The formula is Operating Cash Flow / Current Liabilities.

Why is the Operating Cash Flow Ratio important?

This ratio reveals a company’s ability to generate enough cash flow through operations to cover its current liabilities. It gives investors and creditors a clear picture of the company’s short-term financial health.

What does a high Operating Cash Flow Ratio indicate?

A high Operating Cash Flow Ratio might indicate that the company generates ample cash from its operations and can easily cover its current liabilities, which denotes financial strength.

What does a low Operating Cash Flow Ratio mean?

A low Operating Cash Flow Ratio suggests that the company might struggle to pay off its current liabilities and could face potential financial difficulties.

How frequently should a company calculate its Operating Cash Flow Ratio?

This largely depends on a company’s operations and industry but is commonly calculated on a quarterly or annual basis. However, calculating it more often gives a real-time view of the business’s financial situation.

Is Operating Cash Flow Ratio the only measure of a company’s financial condition?

Although Operating Cash Flow Ratio is crucial in assessing a company’s financial health, it should not be the only measure. Other important metrics, such as profitability ratios, liquidity ratios, and leverage ratios, should also be included for a comprehensive financial analysis.

Related Finance Terms

  • Cash Flow Statement: This document provides a comprehensive review of a company’s cash inflows and outflows during a particular period, including operating activities.
  • Net Income: The total revenue minus the total expenses of a company during a specified period, including taxes and costs.
  • Current Liabilities: A company’s debts or obligations that are due within one year.
  • Operating Activities: The functions that a business engages in on a daily basis to make a profit, such as sales and administration.
  • Liquidity Ratios: Financial metrics used to determine a company’s ability to pay off its short-term debts obligations. The cash flow ratio is one such metric.

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