Nguyen and Tran are both online retail companies the following financial information regarding each company is...
Nguyen and Tran are both online retail companies the following financial information regarding each company is available
Nguyen:
Cash flows from operating activities: 225000
Profits after income tax: 125000
Capital expenditures: 50000
Dividends declared and paid: 30000
Average amount of debt maturing in 5 years: 20000
Tran:
Cash flows from operating activities: 225000
Profits after income tax: 125000
Capital expenditures: 65000
Dividends declared and paid: 10000
Average amount of debt maturing in 5 years: 30000
a) indicate which company generated more free cash flow
b) indicate which company has better cash Flow adequacy ratio
Homework Answers
| a) | Nguyen | Tran |
| Cash flows from operating activities: | $ 2,25,000.00 | $ 2,25,000.00 |
| Less: Capital Expenditure | $ -50,000.00 | $ -65,000.00 |
| Less: Dividends | $ -30,000.00 | $ -10,000.00 |
| Free Cash Flow | $ 1,45,000.00 | $ 1,50,000.00 |
| Tran is generating More Free Cash Flow | ||
| b) | ||
| Cash Flow Adequacy Ratio = Free Cash Flow/Average amount of debt maturing in 5 years | ||
| Nguyen | Tran | |
| Free Cash Flow | $ 1,45,000.00 | $ 1,50,000.00 |
| Average amount of debt maturing in 5 years | $ 20,000.00 | $ 30,000.00 |
| Cash Flow adequacy ratio | 7.25 | 5 |
| Nguyen's cash Flow adequacy ratio is higher than Tran's | ||
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