During 2016, Boogle reported net income of $785 million and net cash inflow from operating activities of $1,196 million. During 2015, Boogle's net income was $563 million and net cash inflow from operations was $1,237 million. Which of the following is incorrect about the quality of income ratios?
A)In 2015 the ratio was 2.2 and in 2016 it was 1.5.
B)The ratio in 2015 was better than the ratio in 2016.
C)Boogle's quality of income ratios indicate poor performance because net income is less than cash flow.
D)The ratio in both years shows the company's ability to generate positive cash flow from its operating activities.

Question

Quizplus · Accepted Answer

The statement that Boogle's quality of income ratios indicate poor performance because net income is less than cash flow is incorrect. The quality of income ratios compare the net income to the net cash inflow from operating activities, which measures how much of the company's reported profits are supported by its operating activities. A ratio less than 1 signals that a company's reported profits are not fully supported by its operating activities, which could indicate poor performance. In this scenario, Boogle had ratios of 2.2 in 2015 and 1.5 in 2016, which means that it generated more cash flow from operating activities than reported net income in both years. This indicates a good ability to convert profits into cash.

During 2016, Boogle Reported Net Income of $785 Million and Net