A company had net cash flows from operations of $120,000, cash flows from financing of $330,000, total cash flows of $500,000, and average total assets of $2,500,000. The cash flow on total assets ratio equals:
A) 4.8%.
B) 5.0%.
C) 20.0%.
D) 20.8%.
E) 24.0%.

Question

Quizplus · Accepted Answer

The cash flow on total assets ratio is calculated by dividing the total cash flows by the average total assets. In this case, it's $500,000 / $2,500,000 = 0.20 or 20%. However, the correct calculation for cash flow on total assets ratio should actually involve net cash flows from operations, not total cash flows. Therefore, it should be $120,000 / $2,500,000 = 0.048 or 4.8%.

A Company Had Net Cash Flows from Operations of $120,000