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The following financial statement data are available for a company:Metric $ thousandsOperating income 3,390Net income 2,210Operating assets 3,850Change in cash and cash equivalents 1,010Change in cash from operating activities 1,750Free cash flow to the firm 2,240The company’s cash-to-income ratio is closest to:A.0.79.B.0.66.C.0.52.

Question

The following financial statement data are available for a company:Metric $ thousandsOperating income 3,390Net income 2,210Operating assets 3,850Change in cash and cash equivalents 1,010Change in cash from operating activities 1,750Free cash flow to the firm 2,240The company’s cash-to-income ratio is closest to:A.0.79.B.0.66.C.0.52.

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Solution

The cash-to-income ratio is calculated by dividing the change in cash from operating activities by the net income.

Given the data:

Change in cash from operating activities = 1,750,000Netincome=1,750,000 Net income = 2,210,000

We can calculate the cash-to-income ratio as follows:

Cash-to-income ratio = Change in cash from operating activities / Net income = 1,750,000/1,750,000 / 2,210,000 = 0.79

Therefore, the company’s cash-to-income ratio is closest to 0.79 (Option A).

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