ulegus&Schools; Map & Locations Conta ourses Organizations Help QUESTION 20 Use
ID: 2392384 • Letter: U
Question
ulegus&Schools; Map & Locations Conta ourses Organizations Help QUESTION 20 Use the following information for LA Theaters to answer the question Financial ratios for the years ended December 31, 2016 2015 Debt ratio (% Long-term debt to total capital (%) Times interest earned (times) Cash interest coverage (times) Fixted charge coverage (imes) Cash flow adequacy (times) Profitability Gross profit 66.1 71.7 54.4 64.8 0.6 0.2 0.9 0.8 0.6 0.2 62.0 61.7 4.4 1.2 profit 7.01.4 3.3 (4,3) 6(15.3) Return on equity (%) Cash return on assets (%) Which statement below is true with regard to the cash flow adequacy ratio of LA Theaters? O The cash flow adequacy ratio indicates that LA Theaters cannot cover all capital expenditures, debt repayments and dividends with cash from operations in 2016 or 2015 The cash flow adequacy ratio indicates that LA Theaters can cover 100% of capital expenditures, debt repayments and dividends with cash from operations in 2016 and 2015 The cash flow adequacy ratio indicates that LA Theaters had a significant increase in the dividends paid in 2016. The cash flow adequacy ratio indicates that LA Theaters is generating negative cash flow in both 2016 and 2015Explanation / Answer
answer:
the correct statement is the cash flow adequacy ratio indicates that LA Theatres cannot cover all captial expenditures dividends and debt repayments with cash generated from operations in 2016 and 2016
Explanation:
the capital adequacy ratio formula is
cash generated from operations / (capital expenditure + debt repayments + dividends)
if this ratio is less than 1 it indicates that the entity cannot cover all captial expenditures dividends and debt repayments with cash generated from operations and it requires additional funds
In the given case the capital adequacy is 0.6 in 2016 and 0.2 in 2015 which is less than 1
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