Which statement concerning the cash flow adequacy ratio is not correct?
A) The ratio assesses the entity's ability to generate sufficient operating cash flow to cover its main cash requirements.
B) The main requirements for cash from operations is to pay debts, acquire assets and pay dividends.
C) A ratio of 100% or more over several years indicates an inadequate ability to general operating cash to cover requirements.
D) A fall in the ratio indicates a lower ability to generate operating cash to meet requirements.

Question

Quizplus · Accepted Answer

A ratio of 100% or more over several years indicates an excess of operating cash flow. Therefore, it would indicate an adequate ability to generate operating cash to cover requirements, not an inadequate ability as stated in option C.

Which Statement Concerning the Cash Flow Adequacy Ratio Is Not