Cash Flow Ratios: Coverage Ratios
In its first year of operation, a company has CFO = USD 500,000, and achieves the results below, in thousands of USD:
| Description | Value |
|-------|--------|
| Proceeds from issuance of long-term debt | 600 |
| Purchase of equipment | 400 |
| Loss on sale of equipment | 140 |
| Proceeds from sale of equipment | 240 |
| Equity in earnings of affiliate | 20 |
The firm's investing and financing coverage ratio is _closest_ to:
Incorrect.
This answer can be derived from including all financing and investing cash flows, not just outflows.
Correct!
Investing and financing coverage ratio equals CFO divided by cash outflows for investing and financing activities:
$$\displaystyle = \frac{500,000}{400,000} = 1.25$$.
Incorrect.
This answer can be derived from including all investing cash flows, but excluding the financing cash flows from the calculation.
1.14
1.25
3.13
