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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Definitions:

Negative Reinforcement

A behavioral principle where the removal of an unfavorable outcome or stimulus following a desired behavior increases the likelihood of that behavior being repeated.

Punishment

A consequence applied to decrease or eliminate a behavior or action considered undesirable.

Acquisition

The process of gaining possession or control of another company or business entity.

Extinction

Extinction in behavioral science refers to the gradual reduction and eventual disappearance of a conditioned response when the reinforcement is no longer presented.