Accounting / July 19, 2018 / Sharon Hardin
Debit to cash flow ratio - more simply known as debt ratio - is a comparison of a company's operating cash flow to it's overall debt. The purpose of this ratio is to estimate a company's ability to cover total debt with its annual cash flow from operations.
As a refresher, a capital lease is one in which a lessee records the leased asset as if it purchased the asset using funding provided by the lessor. As a result, capital lease accounting under current GAAP is actually comprised of two transactions: A purchase of the underlying asset by the lessee AND a loan to the lessee from the lessor to fund the purchase of said asset.
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