Debt to free cash flow
Balance sheetHow many years of current free cash flow it would take to repay all long-term debt.
Formula
Debt/FCF = long-term debt ÷ free cash flow (computed only when FCF is positive)
Why it matters
This is the most practical solvency measure: debt is repaid with cash, not with book equity, so measuring debt in years of cash flow tells you directly how burdensome it is. A company that could clear its debt from two years of free cash flow retains full flexibility — it can survive a downturn, keep investing, and still return cash. A company needing ten years of FCF is effectively working for its lenders.
What good looks like
Under 2 years is a fortress balance sheet (full credit in our quality score). 2–4 years is manageable. 4–6 is heavy, and above 5 years triggers our heavy-debt red flag. Companies with no debt at all score best of all — flexibility has option value that never shows up in a single year's returns.
Caveats
FCF in the denominator makes the ratio volatile: a temporarily depressed FCF year makes leverage look worse than it is, and a bumper year makes it look safer. For cyclicals, compute the ratio against mid-cycle cash flow mentally, not the peak. The ratio is undefined when FCF is negative — which is itself the more important fact.
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