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Ratio analysis

Below is Steve Frim Company's statement of cash flows for the year ended December 31,2005:

Steve Frim Company
Statement of Cash Flows
For the Year Ended December 31, 2005
(in thousands)

Cash Flows from Operating Activities: $389

Net income Adjustments to reconcile net income
to net cash provided by opening activities:
Depreciation expenses $131
Increase in accounts receivable (287)
Increase in merchandise inventory (104)
Increase in prepaid expense (70)
Decrease in accounts payable (4) (334)

Cash Flows from Investing Activities: $(1,255)
Purchase of building (304)
Net cash used by operating activities (1,559)

Cash Flows from Financing Activities:
Proceeds from long-term loan $800
Proceeds from sale of common stock 300
Payment of cash dividends (100)
Net cash provided by financing activities $1,000
Net decrease in cash during 2005 $(504)
Cash balance, January 1, 2005 1, 200
Cash balance, December 31, 2005 $ 696


Assume that average current liabilities total $338,000 and average total liabilities total $1,180,000.

a. Calculate operating cash flow to current debt ratio.
b. Calculate the opening cash flow coverage ratio.

Solution Preview

Operating cash flow to current debt:

Net Cash Flow From Operations / Average Current Liabilities

= $55000/338000= 55/338 or .16

The purpose of this ratio is to evaluate the abilities of the company to repay its current ...

Solution Summary

The following posting helps with problems involving operating cash flow and current debt ratio.