The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year,respectively.Sales revenues are $1.1 million ($0.8 million in the previous year),net income is $40,000,and net cash flows from operating activities are $50,000.How does Tech Track's cash flow to sales ratio compare to the industry average of 5%?
A) Better.
B) Worse.
C) Same as.
D) Cannot be determined with the data provided.

Question

The balance sheet of Tech Track reports total assets of $400,000 and $500,000 at the beginning and end of the year,respectively.Sales revenues are $1.1 million ($0.8 million in the previous year),net income is $40,000,and net cash flows from operating activities are $50,000.How does Tech Track's cash flow to sales ratio compare to the industry average of 5%?
A)	Better.
B)	Worse.
C)	Same as.
D)	Cannot be determined with the data provided.

Quizplus · Accepted Answer

To calculate the cash flow to sales ratio, we need to divide net cash flows from operating activities by the total sales revenue. 
Tech Track's cash flow to sales ratio = ($50,000/$1,100,000) x 100% = 4.54%
Industry average cash flow to sales ratio = 5%
As Tech Track's ratio is lower than the industry average, it implies that they have generated less cash flow from their sales revenue compared to the industry average, and hence the answer is B (Worse).

The Balance Sheet of Tech Track Reports Total Assets of $400,000