Debt Relief Level is a term that refers to the enterprise’s ability to meet its obligations from its own financial capacity. It is an indicator of rationality of the enterprise’s financial policy. It is the ratio between the funding by foreign capital and enterprise’s ability to pay obligations arising from its own financial strength.
Debt relief level = operating cash flow / liabilities (foreign capital)
The recommended value of the ratio is between 20% and 30 %. The development of the ratio is usually followed over time. Decreasing value reflects the growing financial stress of the financial position of the enterprise.
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.