Ch 13 Vocabulary

Question 1

Cash current debt coverage

Answer 1

A cash-based ratio used to evaluate liquidity. It is calculated by dividing net cash provided (used) by operating activities by average current liabilities. p 696

Question 2

Cash total debt coverage

Answer 2

A cash-based ratio used to evaluate solvency. It is calculated by dividing net cash provided (used) by operating activities by average total liabilities. P 698

Question 3

Direct method

Answer 3

A method of determining net cash provided (used) by operating activities by adjusting each item in the income statement from the accrual basis to the cash basis. p 670

Question 4

Financing activities

Answer 4

Cash flow activities that result in changes in the size and composition of the equity and borrowings of a company. p 665

Question 5

Free cash flow

Answer 5

A cash-based measure used to evaluate solvency. It is calculated by deducting net capital expenditures and cash dividends from net cash provided (used) by operating activities. p 699

Question 6

Indirect method

Answer 6

A method of determining net cash provided (used) by operating activities in which profit is adjusted for items that do not affect cash. p 670

Question 7

Investing activities

Answer 7

cash flow activities from the acquisition and disposal of non-current assets. p 665

Question 8

Operating activities

Answer 8

Cash flow activities arising from a company’s principal revenue-producing activities and all other activities that are not investing or financing activities. p 665