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 measures a company's ability to cover its future debt obligations after paying for operating expenses, capital expenditures and dividends. It is calculated by dividing cash flow from operations by total debt service (interest and principal payments). This ratio provides a more accurate picture of a company's ability to meet its debt obligations compared to earnings per share or net income, which can be affected by non-cash items such as depreciation and amortization. The net increase or decrease in cash and cash equivalents may not be a reliable measure as changes in cash can be affected by non-operating activities such as financing or investing activities.

Which of the Following Measures Can Be Used to Evaluate