Compute and Interpret Cash Flow Ratios the following information to compute and

Question

Compute and Interpret Cash Flow Ratios the following information to compute and interpret cash flow ratios. Operating Cash Flow Average Current Liabilities CAPEX Company $2,106 5,668 3,702 2,700 $6,581 2,181 3,365 5,192 $2,425 1,007 1,220 ,984 Required a. Compute the operating cash flow to current liabilities ratio. Compared to the average of 0.5 for large public companies, assess each company's liquidity as low, medium, or high (i.e., its ability to settle liabilities as they come due. b. Compute the operating cash flow to CAPEX ratio. Compared to the rule of thumb of 1.0, assess the company's solvency as either low, medium, or high.

Explanation / Answer

Company Operating Cashflow Average Current Liabilities CAPEX Operating Cashflow to Current Liability Ratio Liquidity Assessment Operating Cashflow to CAPEX Ratio Solvency Assessment (A) (B) (C) (A) / (B) (A) / (C) A 2106 6581 2425 0.32 Low liquidity 0.87 Low Solvency B 5668 2181 1007 2.60 High liquidity 5.63 High Solvency C 3702 3365 1220 1.10 High liquidity 3.03 High Solvency D 2700 5192 1984 0.52 Medium liquidity 1.36 Medium Solvency

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