Which of the following measures can be used to evaluate a company's ability to meet future debt obligations after paying operating expenses,dividends and making capital expenditures?
A)Earnings per share
B)Net income
C)Cash flow adequacy ratio
D)Net increase or decrease in cash and cash equivalents

Question

Quizplus · Accepted Answer

Cash flow adequacy ratio is the best measure to evaluate a company's ability to meet its future debt obligations after paying operating expenses, dividends, and making capital expenditures. It measures the company's ability to generate cash for debt repayment, and operating cash flow is calculated by adding back non-cash expenses like depreciation and amortization to net income. It reflects the cash flows available for the company to service its debt obligations. A higher cash flow adequacy ratio indicates that the company has enough cash flows to meet its debt obligations, while a lower ratio implies a higher risk of default. Earnings per share and net income do not provide an accurate picture of a company's ability to service its debt, as they do not reflect the impact of non-cash expenses and capital expenditures. The net increase or decrease in cash and cash equivalents is also not an appropriate measure, as it only considers the change in cash balances and does not reflect a company's ability to generate recurring cash flows.

Which of the Following Measures Can Be Used to Evaluate