Compute the company cash flow adequacy ratio

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Reference no: EM132868921

Problem - Cash Flow Adequacy - On its most recent statement of cash flows, a company reported net cash provided by operating activities of $12,000,000. Its capital expenditures for the same year were $2,000,000. A note to the financial statements indicated that the total amount of debt that would mature over the next five years was $20,000,000.

Required -

1. Compute the company's cash flow adequacy ratio.

2. If you were a banker considering loaning money to this company, why would you be interested in knowing its cash flow adequacy ratio? Would you feel comfortable making a loan based on the ratio you computed in part (1)? Explain your answer.

Reference no: EM132868921

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