The Cash Coverage Ratio Calculator assists companies and investors in assessing the ease with which a company can pay interest using current cash flow. The ratio offers information about the liquidity and financial stability of the firm, indicating how well earnings and non-cash costs can fund debt requirements.
What is the Cash Coverage Ratio?
The Cash Coverage Ratio (CCR) compares the company’s capacity to cover interest expenses from the cash flows generated through operations. Both Earnings Before Interest and Taxes (EBIT) and Non-Cash Expenses (NCE) such as depreciation or amortization are taken into consideration. If the CCR is greater, it means that a company can cover its interest expenses more comfortably.
Formula for Cash Coverage Ratio
The following formula is applied by the calculator:
CCR = (EBIT + NCE) / IE
Where:
EBIT = Earnings Before Interest and Taxes ($)
NCE = Non-Cash Expenses ($)
IE = Interest Expense ($)
Example Calculation
Assume:
EBIT = $50,000
Non-Cash Expenses = $10,000
Interest Expense = $15,000
Then,
CCR = (50,000 + 10,000) / 15,000 = 4.00
This indicates that the firm can pay its interest expense 4 times with available cash — an indicator of excellent financial health.
How to Use the Cash Coverage Ratio Calculator
Enter the value for EBIT (Earnings Before Interest and Taxes).
Enter the Non-Cash Expenses (NCE), for example, depreciation.
Enter the Interest Expense (IE) figure.
Click on the Calculate button.
The calculator will directly display your Cash Coverage Ratio outcome.
This easy step guides you in finding your business’s ability to cover interest payments with cash flows from operations.
Why the Cash Coverage Ratio Matters
Assesses Financial Health: A high CCR indicates a company has healthy cash flow and little chance of defaulting on interest payments.
Helpful for Lenders and Investors: Banks and investors typically utilize this ratio to determine creditworthiness.
Cash Flow Centered: This ratio is different from other ratios in that it pays attention to availability of cash rather than accounting profits.
Optimal Range for Cash Coverage Ratio
More than 2.0: Excellent — firm can pay interest commitment with ease.
Between 1.0 and 2.0: Moderate — the company can pay interest but might be at risk in a downturn.
Below 1.0: Weak — the company might not be able to pay interest.
Advantages of Using the Online Calculator
Quick and precise calculations
No error due to manual calculation
Useful in financial analysis and planning
Free and convenient to use anywhere
FAQs on Cash Coverage Ratio Calculator
Q1. What if the cash coverage ratio is high?
A high ratio shows that it is easy for the company to meet its interest payments using cash flow.
Q2. Is Cash Coverage Ratio equal to Interest Coverage Ratio?
No. The Cash Coverage Ratio considers non-cash expenses such as depreciation, providing a truer cash-based perspective.
Q3. How good a Cash Coverage Ratio is desirable?
Above 2 and considered to be in good health financially.
Q4. Is it possible to apply this calculator to personal finance?
It’s business-based but can be used by individuals to evaluate loan repayment on the basis of cash flow.
Q5. Why quantify Non-Cash Expenses in the formula?
They capture extra cash available as these costs do not deduct actual cash flow.
Conclusion
Cash Coverage Ratio Calculator
It is an extremely handy tool to know a company’s liquidity and ability to pay interest with operating cash flow. It is useful for any business owner, investor, or analyst to get an immediate view of your financial strength.