question archive Kabutell, Inc
Kabutell, Inc
Subject:BusinessPrice:3.87 Bought7
Kabutell, Inc. had net income of $750,000, cash flow from financing activities of $50,000, depreciation expenses of $50,000 and cash flow from operating activities of $575,000
Calculate the quality of earnings ratio. What does this ratio tell you?
Kabutell, Inc. reported the following in its annual report for 2011-2013
($ million) 2011 2012 2013
ash Flow form Operations $478 $403 $470
Capital Expenditures (CAPEX) $459 $477 $456
Calculate the average capital acquisitions ratio over the three-year period. How would you interpret these results?
What is Kabutell s quality of earnings ratio?
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Answer:
| Quality of earnings ratio = (cash from operations) / (net income). This equation yields a ratio that shows the extent to which a company can verify its reported income through hard operational earnings rather than through aggressive accounting methods. | |||||||||||||||||||||||||
| Quality of earning ratio | 0.766666667 | ||||||||||||||||||||||||
| High numbers show a high quality of earnings | |||||||||||||||||||||||||
| 2011 | 2012 | 2013 | |||||||||||||||||||||||
| Cashflow from operations | 478 | 403 | 470 | ||||||||||||||||||||||
| CAPEX | 459 | 477 | 456 | ||||||||||||||||||||||
| Capital acquasition ratio | 1.041394 | 0.844864 | 1.030702 | ||||||||||||||||||||||
| Capital Acquisition Ratio = (cash flow from operations - dividends) / cash paid for acquisitions. | |||||||||||||||||||||||||
| The capital acquisition ratio reflects the company's ability to finance capital expenditures from internal sources. | |||||||||||||||||||||||||
| A ratio of less than 1:1 (100 %) indicates that capital acquisitions are draining more cash from the business than they are generating revenues. | |||||||||||||||||||||||||
