Question

Casey Corporation reported net income of $96,000, depreciation expense of $3,400, and cash flow from operations of $53,700. Compute the quality of income ratio. What does the ratio tell you about the company’s ability to finance operating and other cash needs from operating cash inflows? (Enter your answer in decimals, not in percentages, rounded to 2 decimal places.)

Answer 1

The quality of Income ratio is 0.56

Step-by-step explanation:

Here in this question, we are interested in computing the quality of income ratio

Mathematically;

Quality Income Ratio = Cash flow from Operating Activity/Net Income

= 53,700/96,000 = 0.56

So what does this ratio tell us?

The indication we have from this calculation is that it is the operating activities that is supplying the bulk of the cash needed by the company (0.56 is 56%).

The remaining cash needs of 0.44 or 44% is sourced from other activities of the company and not its operating activities