Data Analysis

Average Cash Flow to Debt Ratio by Industry

Baden-Baden

27 Apr 2025 • 4 min read

Cash Flow to Debt Ratio by Industry

Table Summary:

Industry	2019	2020	2021	2022	2023
Energy/Transport	0.29	0.12	0.37	0.60	0.55
Finance	0.38	0.22	0.61	0.75	0.46
Industrial	0.45	0.63	0.75	0.56	0.62
LifeSci	0.79	0.93	1.58	1.65	1.15
Mfg	0.43	0.45	0.57	0.50	0.64
Real Estate	0.15	0.17	0.16	0.24	0.28
Tech	0.49	0.62	0.76	0.76	0.93
Trade	0.50	0.67	0.66	0.63	0.84

Evaluating a company’s ability to manage its debt obligations is a core component of financial analysis. One important metric that captures this relationship is the Free Cash Flow to Long-Term Debt ratio. This ratio measures how much free cash flow a company generates compared to its outstanding long-term debt, offering insights into its capacity to service and repay borrowings without depending on additional financing. Higher ratios typically indicate stronger financial stability, while lower ratios may highlight increased financial risk.

In this analysis, free cash flow is calculated as net cash from operating activities minus capital expenditures, based on figures disclosed in company 10-K filings available through the SEC EDGAR database. Capital expenditure includes cash acquisition of Property Plant and Equipment and Intangibles. Long-term debt figures are similarly sourced from EDGAR. By standardizing these inputs across industries, the analysis provides a consistent view of how different sectors have managed their financial leverage.

The chart above shows how Free Cash Flow to Long-Term Debt ratios evolved across industries. Here’s a closer look at each sector:

Energy/Transport

Ratio in 2023: 0.55
Trend: Fell sharply from 0.29 in 2019 to 0.12 in 2020, then recovered to 0.60 in 2022 before settling at 0.55 in 2023.
Historical context:
- The 2020 collapse reflects the global COVID-19 lockdowns, which caused oil demand to plummet and led to negative oil prices briefly in April 2020 [1].
- Recovery from 2021 onward was fueled by reopening economies and the 2022 energy crisis triggered by the Russia-Ukraine conflict, which pushed oil and gas prices higher, improving cash flows across the sector [2].

Finance

Ratio in 2023: 0.46
Trend: Dropped from 0.38 in 2019 to 0.22 in 2020, peaked at 0.75 in 2022, before declining again.
Historical context:
- During 2020, banks dramatically increased loan loss provisions anticipating defaults, squeezing free cash flow [3].
- The post-2020 surge reflected a strong recovery in lending and higher interest margins as central banks raised rates.
- The decline in 2023 corresponds with financial market volatility and stress in sectors like US regional banks [4]..

Industrial

Ratio in 2023: 0.62
Trend: From 0.45 (2019) to 0.75 (2021), then slightly lower.
Historical context:
- Industrial companies faced a global manufacturing boom post-2016 but suffered from supply chain disruptions during COVID-19 [5].
- Government stimulus packages in 2020–2021 supported industrial production [6].
- Higher interest rates and raw material costs in 2022–2023 pressured cash margins slightly.

Life Sciences (LifeSci)

Ratio in 2023: 1.15
Trend: Strong growth from 0.79 in 2019 to 1.65 in 2022, before normalizing.
Historical context:
- The COVID-19 pandemic massively boosted cash flows for major biotech and pharmaceutical companies.
- Pfizer and Moderna generated record free cash flows between 2020 and 2022 due to global vaccine sales [7][8].
- In 2023, as vaccine demand normalized and pandemic-specific revenues declined, cash flows softened, leading to a lower — but still very strong — sector ratio of 1.15 [9].

Manufacturing (Mfg)

Ratio in 2023: 0.64
Trend: A slow but steady climb from 0.43 (2019) to 0.64 (2023).
Historical context:
- Initially hit by factory shutdowns and supply chain bottlenecks in 2020 [10].
- Demand for durable goods, machinery, and vehicles rebounded strongly post-pandemic, supported by stimulus-driven consumer spending and infrastructure investment plans in the US and other major economies [11].

Real Estate

Ratio in 2023: 0.28
Trend: Consistently low, from 0.15 (2019) to 0.28 (2023).
Historical context:
- Real estate firms traditionally carry high leverage [12].
- Even though residential and logistics property markets boomed during COVID-19 due to low interest rates and remote work shifts [13], the recent rise in interest rates (2022–2023) began to weaken cash flows due to higher debt servicing costs [14].

Technology (Tech)

Ratio in 2023: 0.93
Trend: From 0.49 (2019) to nearly 1.0 in 2023.
Historical context:
- The shift to digitalization, remote work, and e-commerce acceleration during COVID-19 massively boosted tech company revenues and margins [15].
- Leading tech firms like Apple, Microsoft, and Google built enormous cash reserves [16].
- Despite market corrections in 2022, cash flows remained robust due to high-margin business models.

Trade (Retail/Wholesale)

Ratio in 2023: 0.84
Trend: From 0.50 (2019) to 0.84 (2023).
Historical context:
- Brick-and-mortar retailers initially suffered during 2020 lockdowns [17].
- However, government stimulus payments in 2020–2021 and strong e-commerce growth helped major retailers adapt [18][19].
- Consumer demand remained resilient even into 2023, supporting strong free cash flow despite cost inflation.

Overall Observations:

Tech, LifeSci, and Trade showed the strongest gains — they are asset-light and highly cash generative.
Energy and Finance were the most sensitive to macro shocks (oil prices, interest rates).
Real Estate remained consistently debt-heavy.
Manufacturing and Industrials showed cyclical but steady improvement, matching economic cycles.