CFADS

CFADS stands for Cash Flow Available for Debt Service. It is a financial metric used primarily in project finance and infrastructure lending to measure the cash a project can generate to cover debt service obligations. CFADS represents the cash flow available after operating needs, taxes, and sustaining capital expenditures, but before financing outlays such as interest and principal repayments.

Calculation methods vary by agreement, but a common approach starts with earnings before interest, taxes, depreciation, and amortization (EBITDA). From EBITDA, subtract cash taxes to obtain after-tax operating cash flow. Subtract sustaining capital expenditures required to maintain the project’s capacity. Subtract changes in working capital that reduce cash, and adjust for any other cash inflows or outflows specific to the project. Some definitions instead begin from cash flow from operations; the exact components should be defined in the loan documentation.

CFADS is used to assess debt service capacity and to calculate the debt service coverage ratio (DSCR), with DSCR equal to CFADS divided by scheduled debt service. Lenders typically require a minimum CFADS or DSCR and may include adjustments for subsidies, tariffs, or other project-specific cash items. The metric is sensitive to contractual definitions and can be affected by accounting and operating assumptions, so transparency in its calculation is important.

Limitations include variability in definition across projects, potential for cyclical cash flows, and the exclusion of debt-related cash flows. CFADS is best interpreted as part of a broader financial model rather than as a standalone measure.