What Is Cash Available for Debt Service (CADS)?

In the financial world, cash available for debt service (CADS) is a ratio that measures the amount of cash a company has on hand relative to its debt service obligations due ꦕwithin one calendar year. These obligations include all current interest payments and principal repayments and take into account several cash inflows and ou🐻tflows.

CADS is also known as cash f꧟low available for debt service (CFADS).

Understanding Cash Avaiౠlable for Debt Service (CADS)

Cash available for debt service (CADS) is expressed as a straight numeral. A CADS ratio under 1 indicates a company can't pay its debts, while a ratio at 1 means it can meet its obligations—but only just: Doing so will leave it with no immediate funds on hand. A ratio above 1 indicates the company can service its debt and have money left over. Many sound companies or projects have three-figure CADS.

CADS is often used in 澳洲幸运5开奖号码历史查询:project finance, a cost-benefit analysis of the complete life-cycle of 🌸a long-term project or investment to determine if it is feasible, and will generate enough cash to cover its costs—to pay for itself, so to speak.

CADS is calculated by netting out revenue, operating expenditure, capital expenditure, tax, and working capital adjustments. It helps measure and determine various other debt repayment calculations and ratios, including 澳洲幸运5开奖号码历史查询:debt service coverage ratio (DSCR), 澳洲幸运5开奖号码历史查询:loan life coverage ratio (LLCR), and project life coverage ratio (PLCR).

Cash flows available for debt service often replace EBITDA (earnings before interest, taxes, depreciation, and amortization) in these calculations. CADS is considered a better indicator of a project’s ability to repay debt because it takes into account the timing of cash flows and the effects of taxes.

🔯 Calculating Cash Available for Debt Service🎃 (CADS)

Cash available for debt service (CADS) can be calculated in a few different ways. Two are particularly common. Both set up a cash flow waterfall model, a sort of balance sheet-cum-schedule that delineates incoming revenues, outgoing expenditures, and the ❀timing of payments to different creditors or to service different debts.

CADS Using Revenue

• Start with EBITDA
• Adjust for changes in net working capital
• Subtract spending on澳洲幸运5开奖号码历史查询: capital expenditures
• Adjust for equity and debt funding
• Subtract taxes

CADS Using Receipts from Customers

• Start with receivables from clients
• Subtract payments to suppliers and employees
• Subtract 澳洲幸运5开奖号码历史查询:royalties
• Subtract spending on capital expenditures
• Subtract taxes

Special Considerations

Lenders prefer loaning money to companies that boast high CADS ratios. The reason is simple: The higher the ratio is, the greater the cash cushion a company has to service its debts, and ♍the less likely it is to default on its outstanding loans. In short, the higher the CADS ratio, the less risky the loan.

On the other hand, shareholders generally prefer companies they invest in to present optimal CADS ratios—which are necessarily the highest ratios. Too high a ratio might indicate ꦛa company is sitting on too much money, and not spending in an intelligent way—it suggests the firm is static, and not expanding. An optimal CADS means the firm is on a secure financial footing and has strong management that understands the effective deployment of cash for capital expenditures, dividend payments, and share repurchases—all things that keep a business robust.

Instead of appearing on a company's balance sheet, CADS ratios may appear as 澳洲幸运5开奖号码历史查询:covenants in debt agreements🦂 with lenders, as do DS🐲CRs and other obligations.