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Debt/FCF Ratio | How many years will it take to repay a company's total debt if all free cash flow is used?

By Kristoff De Turck - reviewed by Aldwin Keppens

Last update: Mar 6, 2024

In the intricate tapestry of financial metrics that investors use to gauge a company's health, the Debt/Free Cash Flow (FCF) ratio stands out as a key indicator. This ratio offers valuable insights into a company's ability to manage its debt obligations in relation to its free cash flow, providing investors with a nuanced perspective on financial strength and sustainability.

Formula

The Debt/Free Cash Flow ratio is calculated by dividing a company's total debt by its free cash flow.

Interpretation

This ratio specifically considers a company's ability to generate free cash flow, which represents the cash available after covering operating expenses and capital expenditures. This focus on cash flow is beneficial in assessing a company's ability to service its debt obligations with available cash.

This ratio provides an indication of how many years it would take for a company to repay its debt if it used all its free cash flow to do so.

Debt/Free Cash Flow vs. Debt/Equity

Both ratios focus on the amount of debt in a company but they do so from a different perspective.

While the Debt to Free Cash Flow ratio provides insight into the company's ability to repay debt with available cash, the Debt to Equity ratio provides a broader view of capital structure and financial risk.

Other Financial Health Ratios

Fundamental Health filters

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