Cash Available for Debt Service (CADS) Explained: 2025 Guide with Calculation & Pricing Insights

Cash Available for Debt Service (CADS) is a vital financial metric that quantifies the cash a company has on hand to cover its debt payments—including both interest and principal—within a 12-month period.

What Is Cash Available for Debt Service (CADS)?

In finance, CADS measures the liquidity a business possesses to fulfill its debt service commitments due in the upcoming year. This includes all scheduled interest payments and principal repayments, factoring in various cash inflows and outflows. It’s also commonly referred to as Cash Flow Available for Debt Service (CFADS).

• CADS indicates the actual cash available to pay short-term debt obligations.
• It is widely used in project finance to evaluate the financial feasibility of investments.
• CADS serves as a foundational input for other critical financial ratios like Debt Service Coverage Ratio (DSCR), Loan Life Coverage Ratio (LLCR), and Project Life Coverage Ratio (PLCR).
• Calculation methods typically start with EBITDA or customer receipts.
• Lenders favor companies with healthy CADS ratios, signaling reliable debt repayment capacity, while investors seek balanced ratios that reflect both financial strength and active capital deployment.

Understanding the CADS Ratio

The CADS ratio is expressed as a numeric value. A ratio below 1 signals insufficient cash to meet debt obligations, while a ratio of exactly 1 means the company can just cover its debts, leaving no extra cash reserve. Ratios above 1 indicate surplus cash after servicing debt, with well-managed companies often exhibiting three-figure CADS values.

Project finance heavily relies on CADS for comprehensive lifecycle cost-benefit analyses, ensuring projects generate enough cash to cover all expenses and debt repayments.

To calculate CADS, businesses deduct operating expenses, capital expenditures, taxes, and working capital changes from revenues. This refined cash flow figure is a superior measure compared to EBITDA alone, as it accounts for timing and tax impacts on cash availability.

Important Distinction

Note that CADS should not be confused with CAD (Cash Available for Distribution), which refers to distributable cash in real estate investment trusts (REITs) for shareholder dividends.

How to Calculate Cash Available for Debt Service (CADS)

There are multiple approaches to calculating CADS, with two prevalent methods involving detailed cash flow waterfall models outlining revenue inflows and expense outflows.

Method 1: Starting with Revenue

• Begin with EBITDA
• Adjust for changes in net working capital
• Subtract capital expenditures
• Account for equity and debt financing adjustments
• Deduct taxes

Method 2: Starting with Customer Receipts

• Start with cash received from customers
• Subtract payments to suppliers and employees
• Deduct royalties
• Subtract capital expenditures
• Deduct taxes

Key Considerations for Lenders and Investors

Lenders prefer higher CADS ratios as they indicate a larger cash buffer to service debts, reducing default risk. Conversely, investors seek an optimal CADS ratio that reflects financial health without excessive cash hoarding, which may signal stagnation. A balanced CADS ratio suggests effective cash management, enabling strategic capital expenditures, dividends, and share repurchases that drive sustainable growth.

While CADS ratios may not appear directly on balance sheets, they often feature as covenant requirements in loan agreements, alongside other financial safeguards like DSCR.

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