Which measure(s) is(are) an evaluation of a company’s ability to pay current liabilities?
1. Current ratio.
2. Free cash flow

Question

Which measure(s) is(are) an evaluation of a company’s ability to pay current liabilities?
1.	Current ratio.
2.	Free cash flow

Quizplus · Accepted Answer

Free cash flow is the cash generated by a company's operations that is available for distribution to its investors or for reinvestment in the business. It is calculated as operating cash flow minus capital expenditures. Therefore, statement 1 is correct as it correctly defines free cash flow. Statement 2, on the other hand, is incorrect as it defines capital expenditure as the cash spent on acquiring capital goods, which is not necessarily true. Capital expenditure can also include cash spent on research and development, for example.

Which Measure(s) Is(are) an Evaluation of a Company’s Ability to Pay