Cash Flow Adequacy Ratio Calculator: Can You Cover It?

What does a CFAR of 1.43 mean?

On the defaults — $500,000 of operating cash flow, $120,000 of debt payments, $150,000 of capital expenditures and $80,000 of dividends — the claims total $350,000.00 and the CFAR is 1.43, which means every $1 of claims is covered by $1.43 of operating cash flow. The claims are the three things the cash has to pay for: the long-term debt payments, the capital expenditures and the dividends. The CFAR is the operating cash flow divided by those claims: $500,000.00 ÷ $350,000.00 = 1.43. A CFAR of 1.43 means the cash covers the claims with $0.43 to spare on every dollar; a CFAR of 1.00 means the cash exactly covers the claims and nothing more; a CFAR below 1.00 means the cash does not cover the claims at all.

Three things about the model are worth stating plainly.

First, the division is $500,000.00 ÷ $350,000.00 = 1.43. Second, the meaning is one dollar and forty-three cents of operating cash flow per dollar of claims — the cover on the bills, not the profit on the sales. And third, the CFAR is displayed to two decimals, half-up, and a CFAR that displays as 1.43 can sit a hair below the displayed figure: $499,999.50 of operating cash flow, $119,999.25 of debt payments, $149,999.75 of capital expenditures and $79,999.50 of dividends gives 1.428576, which displays as 1.43 — all listed in Accuracy & limitations.

The worked example, line by line

Setup: operating cash flow $500,000, debt payments $120,000, capital expenditures $150,000, dividends $80,000.

Line 1 — the claims. $120,000 + $150,000 + $80,000 = $350,000.00.

Line 2 — the CFAR. $500,000.00 ÷ $350,000.00 = 1.43.

Line 3 — the check. At a $525,000 operating cash flow the CFAR is 1.50; and at $524,999 it is 1.499997 — below 1.50.

Every branch, checked

Operating cash flow $600,000: operating cash flow $600,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 1.71 — With $600,000 of operating cash flow the CFAR rises to 1.71.

Operating cash flow $400,000: operating cash flow $400,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 1.14 — With $400,000 of operating cash flow the CFAR falls to 1.14.

Debt payments $100,000: operating cash flow $500,000.00; debt payments $100,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $330,000.00; CFAR 1.52 — With $100,000 of debt payments the claims fall to $330,000.00 and the CFAR rises to 1.52.

Debt payments $150,000: operating cash flow $500,000.00; debt payments $150,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $380,000.00; CFAR 1.32 — With $150,000 of debt payments the claims rise to $380,000.00 and the CFAR falls to 1.32.

Capital expenditures $200,000: operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $200,000.00; dividends $80,000.00; claims $400,000.00; CFAR 1.25 — With $200,000 of capital expenditures the claims rise to $400,000.00 and the CFAR falls to 1.25.

Capital expenditures $100,000: operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $100,000.00; dividends $80,000.00; claims $300,000.00; CFAR 1.67 — With $100,000 of capital expenditures the claims fall to $300,000.00 and the CFAR rises to 1.67.

Dividends $50,000: operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $50,000.00; claims $320,000.00; CFAR 1.56 — With $50,000 of dividends the claims fall to $320,000.00 and the CFAR rises to 1.56.

Dividends $120,000: operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $120,000.00; claims $390,000.00; CFAR 1.28 — With $120,000 of dividends the claims rise to $390,000.00 and the CFAR falls to 1.28.

The reverses, worked backwards

Smallest operating cash flow for the CFAR to REACH 1.50: At the displayed $525,000 the figures are operating cash flow $525,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 1.50 (unrounded 1.500000). At $525,000 the CFAR is 1.50 (unrounded 1.500000) — on the line. At $524,999 the CFAR is 1.499997 unrounded — below the target, though it displays as 1.50 — so $525,000 is the smallest operating cash flow for the CFAR to reach 1.50.

Largest long-term debt payments for the CFAR to STAY at or above 1.50: At the displayed $103,333 the figures are operating cash flow $500,000.00; debt payments $103,333.00; capital expenditures $150,000.00; dividends $80,000.00; claims $333,333.00; CFAR 1.50 (unrounded 1.500002). At $103,333 the CFAR is 1.500002 unrounded — above the target. At $103,334 the CFAR is 1.499997 unrounded — below the target, though it displays as 1.50 — so $103,333 is the largest long-term debt payments for the CFAR to stay at or above 1.50.

Largest capital expenditures for the CFAR to STAY at or above 1.25: At the displayed $200,000 the figures are operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $200,000.00; dividends $80,000.00; claims $400,000.00; CFAR 1.25 (unrounded 1.250000). At $200,000 the CFAR is 1.25 (unrounded 1.250000) — on the line. At $200,001 the CFAR is 1.249997 unrounded — below the target, though it displays as 1.25 — so $200,000 is the largest capital expenditures for the CFAR to stay at or above 1.25.

Smallest operating cash flow for the CFAR to REACH 2.00: At the displayed $700,000 the figures are operating cash flow $700,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 2.00 (unrounded 2.000000). At $700,000 the CFAR is 2.00 (unrounded 2.000000) — on the line. At $699,999 the CFAR is 1.999997 unrounded — below the target, though it displays as 2.00 — so $700,000 is the smallest operating cash flow for the CFAR to reach 2.00.

Largest capital expenditures for the CFAR to STAY at or above 2.00: At the displayed $50,000 the figures are operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $50,000.00; dividends $80,000.00; claims $250,000.00; CFAR 2.00 (unrounded 2.000000). At $50,000 the CFAR is 2.00 (unrounded 2.000000) — on the line. At $50,001 the CFAR is 1.999992 unrounded — below the target, though it displays as 2.00 — so $50,000 is the largest capital expenditures for the CFAR to stay at or above 2.00.

Smallest operating cash flow for the CFAR to REACH 1.00: At the displayed $350,000 the figures are operating cash flow $350,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 1.00 (unrounded 1.000000). At $350,000 the CFAR is 1.00 (unrounded 1.000000) — on the line. At $349,999 the CFAR is 0.999997 unrounded — below the target, though it displays as 1.00 — so $350,000 is the smallest operating cash flow for the CFAR to reach 1.00.

A warning about the neighbours: every neighbour above sits one dollar from the star, and every neighbour CFAR is a hair below the target even though it displays as the target — a one-dollar move in any input moves the CFAR by less than 0.005, so the displayed two-decimal figure cannot tell the star from its neighbour. The page prints the unrounded six-decimal value in full so the rounding does not mislead you: 1.500000, 1.499997, 1.500002, 1.250000, 1.249997, 2.000000, 1.999997, 1.999992, 1.000000, 0.999997.

What the defaults assume

The defaults are $500,000 of operating cash flow, $120,000 of debt payments, $150,000 of capital expenditures and $80,000 of dividends — operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 1.43. With Operating cash flow $600,000, operating cash flow $600,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 1.71. With Operating cash flow $400,000, operating cash flow $400,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 1.14. With Debt payments $100,000, operating cash flow $500,000.00; debt payments $100,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $330,000.00; CFAR 1.52. With Debt payments $150,000, operating cash flow $500,000.00; debt payments $150,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $380,000.00; CFAR 1.32. With Capital expenditures $200,000, operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $200,000.00; dividends $80,000.00; claims $400,000.00; CFAR 1.25. With Capital expenditures $100,000, operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $100,000.00; dividends $80,000.00; claims $300,000.00; CFAR 1.67. With Dividends $50,000, operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $50,000.00; claims $320,000.00; CFAR 1.56. With Dividends $120,000, operating cash flow $500,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $120,000.00; claims $390,000.00; CFAR 1.28. With All zero, operating cash flow $0.00; debt payments $0.00; capital expenditures $0.00; dividends $0.00; claims $0.00; CFAR undefined — no cash flow, no claims, and the CFAR is undefined. With Operating cash flow $750,000, debt payments $100,000, capital expenditures $100,000, dividends $50,000, operating cash flow $750,000.00; debt payments $100,000.00; capital expenditures $100,000.00; dividends $50,000.00; claims $250,000.00; CFAR 3.00. With Fractional inputs, operating cash flow $499,999.50; debt payments $119,999.25; capital expenditures $149,999.75; dividends $79,999.50; claims $349,998.50; CFAR 1.43 (unrounded 1.428576) (unrounded 1.428576) — the CFAR displays as 1.43. With Operating cash flow $2,000,000, debt payments $500,000, capital expenditures $400,000, dividends $300,000, operating cash flow $2,000,000.00; debt payments $500,000.00; capital expenditures $400,000.00; dividends $300,000.00; claims $1,200,000.00; CFAR 1.67. With Claims $0, operating cash flow $500,000.00; debt payments $0.00; capital expenditures $0.00; dividends $0.00; claims $0.00; CFAR undefined — division by zero, no claims to divide by. With Operating cash flow $0, operating cash flow $0.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 0.00 — no cash, a real figure, not undefined. With Negative operating cash flow, operating cash flow −$50,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR −0.14 — the business is burning cash, a negative CFAR. With Small claims, operating cash flow $500,000.00; debt payments $50,000.00; capital expenditures $25,000.00; dividends $25,000.00; claims $100,000.00; CFAR 5.00. With Fractional inputs, operating cash flow $399,999.99; debt payments $99,999.99; capital expenditures $99,999.99; dividends $99,999.99; claims $299,999.97; CFAR 1.33 (unrounded 1.333333) (unrounded 1.333333) — the CFAR displays as 1.33. With CFAR below 1, operating cash flow $300,000.00; debt payments $120,000.00; capital expenditures $150,000.00; dividends $80,000.00; claims $350,000.00; CFAR 0.86. With Operating cash flow $625,000, debt payments $110,000, capital expenditures $140,000, dividends $75,000, operating cash flow $625,000.00; debt payments $110,000.00; capital expenditures $140,000.00; dividends $75,000.00; claims $325,000.00; CFAR 1.92.

A note on the rounding: the CFAR is displayed to two decimals, half-up. With the fractional inputs the unrounded CFAR is 1.428576 — it displays as 1.43. The page prints the unrounded value so the rounding does not mislead you.

Output · formula · meaning

Who uses this

• The small-business owner checking the bills: they learn $500,000 of operating cash flow against $350,000.00 of claims is a CFAR of 1.43 — and they check the $525,000 reverse to see the cash flow that lifts the cover to 1.50.
• The CFO testing a dividend: they learn $80,000 of dividends against $120,000 of debt and $150,000 of capex is a CFAR of 1.43 — and they check the $50,000 capex reverse to see what it takes to reach 2.00.
• The lender sizing a loan: they learn a CFAR below 1.00 means the cash does not cover the claims — and they check the $350,000 reverse to see the cash flow that exactly covers the claims.
• The student learning cash-flow ratios: they learn the CFAR is the operating cash flow divided by the debt, capex and dividends together — and they check the $200,000 capex reverse to see the largest capex that keeps the CFAR at or above 1.25.

Accuracy & limitations

The math is first-principles: the claims are the long-term debt payments plus the capital expenditures plus the dividends, and the CFAR is the operating cash flow divided by the claims — all in dollars, the CFAR displayed to two decimals half-up. There IS division in this calculator — at $0 of claims the CFAR is UNDEFINED, division by zero, no claims to divide by — the calculator shows “CFAR undefined” with a note, never hides it. At a $0 operating cash flow the CFAR is 0.00 — a real figure, not undefined — and at a negative operating cash flow the CFAR is −0.14 — the business is burning cash. With the fractional inputs the unrounded CFAR is 1.428576 — it displays as 1.43. What the model cannot do is price the timing: the CFAR says nothing about when the cash arrives or when the claims fall due — a business that earns its cash in December and pays its debt in January can still run short. It also says nothing about whether the claims are fixed or discretionary — a dividend can be cut, a debt payment cannot. Use it to see whether the cash covers the bills — then check the cash-flow-to-debt ratio, the operating cash flow ratio and the timing before you decide the business is safe.

Frequently asked questions