What Is a Cash Coverage Ratio?

The cash flow coverage rate is a saying in the banking industry that for local financing platform loans, loans should be divided into four categories: full coverage, basic coverage, semi-coverage, and basically no coverage according to the cash flow coverage ratio.

Cash flow coverage

Banking financial institutions are based on cash flow coverage (cash flow coverage ratio = current repayable cash flow / current debt repayment obligations).

The cash flow coverage ratio generally refers to whether the cash flow generated by the project can cover the corresponding loan principal and interest, and reveals the project's cash flow ability to repay the loan. The CBRC adopts the four-point method of the cash flow coverage ratio for the repayment of local government investment and financing platform loans, that is, full coverage of cash flow, basic coverage of cash flow, semi-coverage of cash flow, and no coverage of cash flow.

Cash flow is an important concept in modern financial management. It refers to the cash generated by a company through certain economic activities (including operating activities, investment activities, financing activities, and non-recurring items) in accordance with the cash receipt and payment system in a certain accounting period. A general term for inflows, cash outflows, and totals. That is, the inflow and outflow of cash and cash equivalents in a certain period of time. Cash flow management is an important function of modern corporate financial management activities. Establishing a comprehensive cash flow management system is an important guarantee to ensure the survival and development of an enterprise and improve its competitiveness in the market.