Explanation:
The cash flow debt coverage ratio measures a company's ability to repay its debt from operating cash flows. The formula is:
Cash Flow Debt Coverage Ratio = CFO / Total Debt
Where:
From the given data:
Calculation: Cash Flow Debt Coverage Ratio = 105.9 / 512.8 = 0.2065 or 20.65%
Why this is correct:
Verification: 105.9 ÷ 512.8 = 0.2065 ≈ 20.6%
Therefore, the correct answer is 20.6% (Option A).
Ultimate access to all questions.
No comments yet.
An analyst gathers the following information about a company:
| Item | Canadian Dollars (millions) |
|---|---|
| Cash flow from operating activities (CFO) | 105.9 |
| Cash flow from investing activities | (11.8) |
| Cash flow from financing activities | 46.5 |
| Net change in cash for the year | 140.6 |
| Interest paid (included in CFO) | 22.4 |
| Taxes paid (tax rate of 30%) | 18.0 |
| Total debt, end of year | 512.8 |
The cash flow debt coverage ratio for the year is closest to:
A
20.6%.
B
23.7%.
C
27.4%.