Skip to content

CMA Intermediate · Financial Management and Business Data Analytics · Cash Flow Statement - Preparation and Analysis

Kaveri Auto Ltd has operating cash flow of ₹12,00,000, current liabilities average of ₹8,00,000 and net profit of ₹10,00,000. What are its cash flow to current liabilities ratio and its cash flow to net profit (cash conversion quality) ratio respectively?

The ratios are 1.5 times and 1.2 times. Operating cash flow of ₹12,00,000 divided by average current liabilities of ₹8,00,000 gives 1.5, while dividing by net profit of ₹10,00,000 gives 1.2, showing profits are well backed by cash generation.

  1. A1.5 times and 1.2 timesCorrect
  2. B1.2 times and 1.5 times
  3. C0.67 times and 0.83 times
  4. D1.5 times and 0.83 times

Explanation

Operating cash flow to current liabilities = 12,00,000 / 8,00,000 = 1.5 times. Operating cash flow to net profit = 12,00,000 / 10,00,000 = 1.2 times. The swapped option reverses the denominators, and the 0.67 and 0.83 options invert the ratios.

Did you get it right without looking?

One question tells you little. A timed set on Cash Flow Statement - Preparation and Analysis shows your real accuracy, how long you take and where you lose marks.

Practise Cash Flow Statement - Preparation and AnalysisFree diagnostic mock

More Cash Flow Statement - Preparation and Analysis questions