Cash Available For Debt Service - CADS

Every company runs up some debt. Hey, if someone is willing to give you money, why not take it? Taking on some debt isn't necessarily a bad thing. A little bit can help fuel growth and spur a company on to bigger things. But how can you tell if a company has too much debt? That's where the CADS figure comes in.

Analysts like to look at the amount of cash it has on hand, compared to its debt obligations (principal and interest payments due within a one-year period, for example). Let's say a company has $100,000 in cash and other liquid assets and debt obligations of $60,000. Calculate the cash available for debt service (CADS) ratio by dividing the cash by the debt obligations, yielding a ratio of 1.66. The higher the CADS ratio, the better (at least over 1) since that means there's more cash on hand to cover its debt obligations in order to avoid a default.