What Does Cash Available for Debt Service Mean?

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 within one calendar year, including all current interest payments and principal repayments.

Understanding Cash Available for Debt Service (CADS)

Lenders prefer loaning money to companies that boast high CADS ratios. The reason for this is simple: the higher the ratio is, the greater the cash cushion a company has to fund its debt service payments, and the less likely it is to default on its outstanding loans. The higher the CADS ratio, the less risky the investment.

On the other hand, shareholders generally prefer companies they invest in to present optimal CADS ratios, and not necessarily high ratios. This is because businesses that fall in the former category tend to enjoy secure financial footing, strong management, and the effective deployment of cash for capital expenditures, dividend payments, and share repurchases—all things that keep a company robust.

Instead of appearing on a company's balance sheet, CADS ratios may appear as covenants in debt agreements with lenders, along with other debt service coverage ratios (DSCR).