On Its Most Recent Statement of Cash Flows, a Company

question 169

Essay

On its most recent statement of cash flows, a company reported net cash provided by operating activities of
$16,000,000. Its capital expenditures for the same year were $6,000,000. A note to the financial statements indicated that the total amount of debt that would mature over the next five years was $24,000,000.
REQUIRED:
1. Compute the company's cash flow adequacy ratio.
2. If you were a banker considering loaning money to this company, why would you be interested in knowing its cash flow adequacy ratio? Would you feel comfortable making a loan based on the ratio you computed in 1? Explain your answer.

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