For the current year, Mendez Company's net cash flow from operating activities is $60,000; its beginning total liabilities were $100,000, and its ending total liabilities were $200,000. The company's operating-cash-flow-to-total-liabilities ratio for the year is:
A) 0.40
B) 0.30
C) 0.20
D) 0.10
E) None of the above

Question

Quizplus · Accepted Answer

The operating-cash-flow-to-total-liabilities ratio is calculated by dividing the net cash flow from operating activities by the average total liabilities. The average total liabilities is calculated by adding the beginning and ending total liabilities and dividing by 2. In this case, the average total liabilities is ($100,000 + $200,000) / 2 = $150,000. The operating-cash-flow-to-total-liabilities ratio is therefore $60,000 / $150,000 = 0.40.

For the Current Year, Mendez Company's Net Cash Flow from Operating