Question

Cash Flow Ratios Tracy Company reports the following amounts in its annual financial statements:_________.

Cash flow from operating activities $90,000 Capital expenditures $31,000*
Cash flow from investing activities (70,000) Average current assets 80,000
Cash flow from financing activities (10,000) Average current liabilities 60,000
Net income 44,000 Total assets 180,000
* This amount is a cash outflow.
a. Compute Tracy's free cash flow.
b. Compute Tracy's operating-cash-flow-to-current-liabilities ratio.
c. Compute Tracy's operating-cash-flow-to-capital-expenditures ratio.

Answer 1

Answer: a. $59,000. b. 1.5x. c. 2.9x

Step-by-step explanation:

a) Tracy's Free cash flow will be calculated as:

= Cashflow from operating activities - Capital expenditures

= $90000 - $31000

=$59000

b) Tracy's operating cash flow to current liabilities ratio will be:

Operating cashflow ÷ Current liabilities

= $90000 ÷ $60000

= 1.5x

c) Tracy's operating cashflow to capital expenditures ratio will be:

= Operating cashflow ÷ capital expenditure

= $90000 ÷ $31000

= 2.90x