Cash & Working CapitalTalking Shop

Talking Shop: What is Your Cash Flow Coverage Target?

By January 26, 2021No Comments

Member question: “Looking to take a quick pulse of the group. What is your cash flow coverage target for your current fiscal year period? Coverage can be defined as hedges placed vs. earnings exposure estimate or maximum hedge accounting capacity.

  • “Our cash flow hedges are currently covering ~70% of our entire estimated earnings exposure (which closely aligns with our max hedge accounting capacity). This is up significantly from two years ago and is the culmination of a huge effort. Wanting to understand if this is within a normal range since I’m [being asked] to push coverage higher.

Peer answer 1: “Our policy allows us to hedge up to 80% of the current year’s exposure in a cash flow program.”

Peer answer 2: “We target 40-60% but can go as high at 75%, one year and in.”

Peer answer 3: “Our coverage targets depend on our position (long or short) and our views on if the currency is expected to come our way or if it is moving against us. We are allowed to hedge up to 100% of our rolling 12-month net cash flow currency exposures. We watch very closely if we get between 70%-80% of our accounting cash flow exposures.”

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Justin Jones

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