Cash Flow Solvency, usually not abbreviated. It is a term that indicates the enterprise’s ability to pay its obligations. The indicator reflects how many times the annual income is higher than the debts of an enterprise.
Two versions of calculation:
Cash Flow Solvency I. = Operating CF / Liabilities
Cash Flow Solvency II. = Operating CF / (Liabilities - Cash)
The indicator belongs to indicators based on cash flow.
Use of the indicator in practice: In the enterprise it is used by CFO in financial analysis to analyze ratios. Indicators based on cash flow try to catch warning signs of potential credit problems and assess internal financial potential of the company.
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