When operating earnings and cash flows from operations are dissimilar,which of the following ratios is a better measure of long-term solvency?
A)Interest coverage
B)Long-term debt to asset
C)Long-term debt to tangible assets
D)Operating cash flow to total liabilities

Question

Quizplus · Accepted Answer

When operating earnings and cash flows from operations are dissimilar, the best measure of long-term solvency would be a ratio that includes cash flows from operations. Option D, i.e. operating cash flow to total liabilities, is the only ratio that measures the cash generating ability of a company's operations and considers its ability to repay all of its current and long-term debt obligations. The other three options do not factor in cash flows from operations and are solely based on debt levels, which may not accurately represent a company's ability to make debt payments.

When Operating Earnings and Cash Flows from Operations Are Dissimilar,which