Cash-Flow-to-Debt Ratio: Formula, What a Good One Is, and 439 Real Companies

Michael Whitman · Trading since 2017, full-time since 2020 · YouTube creator, 137K subscribers · Published 2026-09-14 · Updated 2026-11-02 · Reviewed 2026-11-01

The cash-flow-to-debt ratio is operating cash flow for a year divided by total debt. It tells you what fraction of its borrowing a company could pay off with one year of cash from running the business, and its upside-down version is the number of years that would take.

A reading of 0.25 means a quarter of the debt, or four years. The interesting part is not the arithmetic but what goes into each side, and what a normal reading looks like once you compute it for hundreds of real companies instead of a textbook one.

How it works

Numerator: cash from operations. It is the first subtotal on the cash flow statement, usually labeled “net cash provided by operating activities”. It starts from net income on the income statement, adds back costs that used no cash such as depreciation, and adjusts for money tied up in or released from receivables, inventory and payables.

Denominator: borrowed money, all of it. That means bonds, notes and bank loans including the slice due within a year, plus commercial paper and other short-term borrowings. Operating lease liabilities are usually left out; finance leases are often bundled into the debt line by the company itself.

Two readings of the same figure:

Why bother when profit exists? Profit includes sales customers have not paid for and excludes cash spent on stock still sitting in a warehouse. Lenders get repaid from the bank balance, so a measure built on the bank balance answers their question more directly.

A worked example: Union Pacific’s 2025 10-K

The railroad filed its annual report for 2025 on 6 February 2026. Here are the inputs, in millions of dollars, from that filing.

Step 1, the ratio: $9,290 ÷ $31,814 = 0.29. A year earlier it was $9,346 ÷ $31,192 = 0.30, so cash slipped a little while debt grew by $622 million.

Step 2, the years: $31,814 ÷ $9,290 = 3.42. If every dollar of 2025 operating cash went to lenders, the debt would be gone in under three and a half years.

Step 3, the harsher version. Trains and track wear out, and Union Pacific spent $3,791 million on capital investments. Operating cash minus that is $5,499 million of free cash flow, and $5,499 ÷ $31,814 = 0.17, almost six years.

Step 4, where the cash went instead. Dividends took $3,236 million, leaving $2,263 million, and share buybacks of $2,679 million took more than that. Together those three uses exceeded operating cash by $416 million, and over the same year debt rose by $622 million.

Step 5, interest. Interest expense was $1,309 million, 14.09% of operating cash. That is the cost of carrying the debt before a dollar of it is repaid, the part an interest coverage ratio measures against earnings instead.

How it compares with what the company reports. Union Pacific’s own 10-K gives adjusted debt to adjusted EBITDA of 2.7 and debt to net income of 4.5. Our cash version, 3.42 years, sits between them: EBITDA is larger than operating cash because it comes before interest, taxes and working-capital changes, while net income is smaller because it deducts depreciation.

And a dated caution. The same filing says the company expects to take on significant new debt for its planned combination with Norfolk Southern and had paused buybacks because of it. A ratio from a 10-K describes the balance sheet on its closing date, not after a deal that has not yet been financed.

What is a good cash-flow-to-debt ratio?

The common answer is 0.2 to 0.5, with anything under 0.1 a worry. That band shows up in reference articles with no data behind it, so we checked it against the filings in the next section.

Measured, the middle sits low in that band. The median of 439 large non-financial companies was 0.28, about three and a half years of cash. The middle half ran from 0.16 to 0.48.

The band itself held 40.09% of them. A quarter of the sample, 112 companies, sat between 0.1 and 0.2, a range the usual advice would mark as weak, and many of them were utilities.

So “good” depends on the cash, not just the number. A regulated utility with predictable bills can live at 0.15. A chipmaker or an oil producer whose cash can drop sharply in a bad year needs a higher figure to be equally safe, which is the business risk behind the reading.

The original data

We computed the ratio from SEC XBRL data for every large company we could match cleanly. The rules, applied in this order:

1. Start from the 5,792 filers in the SEC’s calendar-2025 operating cash flow frame. Each gives one fiscal year; period ends ran from 30 June 2025 to 28 June 2026, and 316 of the final companies closed on 31 December.
2. Keep filers with total assets of at least $10 billion at that year end (848) and a stock ticker in the SEC’s ticker file (772). That second test drops unlisted subsidiaries that file only because they have bonds outstanding.
3. Drop SIC codes 6000 to 6799 (272: banks, insurers, asset managers, real estate trusts), where borrowing is raw material and the ratio means something else. Drop 5 with no SIC code and 26 whose figures did not come from a 10-K, mostly foreign 20-F and 40-F filers whose dollar tags can be partial translations.
4. One filer per company. Where two filers reported the same operating cash flow and the same total assets for the same date, or the same debt to the dollar and operating cash within 1%, we kept the one with the larger assets. That removed three entities that repeat a parent’s statements: SunocoCorp LLC (Sunoco LP kept), Restaurant Brands International Inc. (its limited partnership kept) and Plains All American Pipeline (Plains GP Holdings kept). Separately listed companies with their own different statements stay in.
5. Debt is the largest long-term debt reading each company tagged (total long-term debt, or non-current plus current, or debt with finance leases, or senior notes), plus commercial paper and short-term borrowings. We take the largest because some filers tag only one piece under a given name. Operating leases are excluded, a current portion on its own does not count as total debt, and 27 companies with no usable debt tag drop out.

That leaves 439 companies. Every row, with its tags and accession number, is in the company table.

By range, the counts were 12 below zero (2.73%), 34 from 0 to 0.1 (7.74%), 112 from 0.1 to 0.2 (25.51%), 78 from 0.2 to 0.3 (17.77%), 98 from 0.3 to 0.5 (22.32%), 64 from 0.5 to 1 (14.58%) and 41 at 1 or more (9.34%).

The spread is wide at both ends. Twelve companies had negative operating cash flow, led by Moderna, which used $1,873 million in operations against $590 million of debt. At the other extreme NVIDIA produced $102,718 million of operating cash against $8,468 million of debt, a ratio of 12.13, and GE Vernova’s 14.17 was the highest.

41 companies, 9.34%, could have cleared all their debt in a single year. Another 46, or 10.48%, were below 0.1, meaning more than ten years of cash at that pace or cash going the wrong way.

Cash beat profit for most of them. Operating cash flow was larger than net income at 379 of the 414 companies that also tagged net income, the usual pattern when depreciation is a big non-cash cost.

Capital spending changes the picture more than anything else. Among the 309 companies that tagged capital expenditure for the same year, the free-cash-flow version had a median of 0.18 against 0.28 for the plain ratio, and 48 of them spent more on equipment than their operations brought in.

Industry explains a large part of the spread, which is why a single cut-off cannot fit every company. Groups are built from SIC codes and some are small, so read the shorter bars as rough.

Utilities sit lowest at 0.15 across 59 companies, because power plants and grids are built with long-dated bonds repaid out of regulated rates over decades. Telecom and media came next at 0.22, a group of only 18.

Oil, gas and mining had the highest median, 0.60 across 33 companies, and software and IT services followed at 0.56 across 25. Between them and the bottom two came other manufacturing at 0.32 (141 companies), other services at 0.31 (53), transportation at 0.29 (19), retail and wholesale at 0.29 (52) and health care and drugs at 0.28 (39). Both reflect fiscal 2025 conditions, and commodity producers’ cash moves with prices, so one year is a thin basis for a norm.

An earlier, narrower version of this check covered seven companies; that seven-company table is still available.

Cash flow to debt vs debt to EBITDA

Same question, different numerator. Debt to EBITDA is the version written into most loan agreements, and it is usually the smaller number because EBITDA comes before interest, taxes and working-capital swings, all of which reduce cash.

That gap is the argument for the cash version. EBITDA can be “adjusted” for items the company considers one-off; operating cash flow has fewer such adjustments, since money either arrived or it did not.

Where the EBITDA version wins is comparability. Covenants and credit agencies quote it, so if you want to know how close a company sits to a lender’s limit, the 10-K’s own debt-to-EBITDA disclosure is the one to read.

How it fits with other debt measures

The debt-to-equity ratio measures how a company is funded. It does not say whether the business generates cash to service what it owes; this ratio does.

The current ratio looks only at the next twelve months. Short-term assets against short-term bills, while cash flow to debt looks across the whole debt load.

The debt ratio compares debt with assets, and the debt service ratio narrows the question to payments actually due.

All of them feed the same judgment: credit risk, the chance a borrower misses a payment. A weak cash reading usually shows up in what a corporate bond from that issuer has to pay, and more leverage against the same cash leaves less room for a bad year.

The inputs all live in the annual report, and the operating cash figure is also the starting point of most discounted cash flow valuations. Our guide to reading a cash flow statement shows where to find it.

When it fails

One year can mislead. Collect from customers early or pay suppliers late at year end and operating cash jumps without the business changing; it reverses the next year. Check two or three years, as the Union Pacific table does.

It ignores when the debt is due. Three and a half years of cash is plenty for bonds maturing over decades and not enough for a loan due in eighteen months. The debt maturity table in the 10-K settles that.

It ignores required spending. Union Pacific drops from 0.29 to 0.17 once track and locomotive spending comes out, and for heavy-industry companies the gap is often wider.

The debt figure depends on definitions. Leases, commercial paper and the current portion can be in or out depending on who computed the number, so check the denominator before comparing two published ratios.

It is a snapshot. A planned acquisition, like the one Union Pacific described, can change the denominator after the balance-sheet date.

Questions people ask

What is a good cash-flow-to-debt ratio?

There is no universal cut-off. Among 439 large non-financial SEC filers the median was 0.28, with the middle half between 0.16 and 0.48; compare a company with its own industry and its own history rather than one number.

Can the cash-flow-to-debt ratio be negative?

Yes, when operating cash flow is negative. Twelve of the 439 companies were below zero for fiscal 2025, meaning their operations consumed cash and none was available to repay debt.

Is it the same as the debt service coverage ratio?

No. Debt service coverage compares cash or earnings with the interest and principal due this year; cash flow to debt compares cash with the entire debt balance, whenever it is due.

Should I use operating cash flow or free cash flow?

Operating cash flow is the standard definition. Free cash flow, after capital spending, is the stricter test; for Union Pacific in 2025 it lowers the ratio from 0.29 to 0.17.

Related

Debt ratio measures the same burden against assets instead of cash. Cash flow statement explains where the numerator is reported, and debt service ratio narrows the test to payments falling due.

This page is educational, not financial advice. Test every idea on your own charts before risking money.