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.
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 = 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 = 2,210,000 = 0.79
Therefore, the company’s cash-to-income ratio is closest to 0.79 (Option A).
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