Chapter 12, Problem 12.9BE

(a)

To determine

Free cash flow: It describes the net cash provided from operating activities after making required adjustments for dividends and capital expenditures. In other words, it is the cash flow arrived after making payment for capital expenditures and dividend payments.

Current cash debt coverage ratio: It is a liquidity ratio which measures the relationship between net cash provided from operating activities and average current liabilities during the year. This ratio would be helpful in indicating the ability of the business to pay off its current liabilities from its ongoing business operations.

$\text{Current cash debt coverage ratio = }\frac{\text{Net cash provided by operating activities}}{\text{Average current liabilities}}$

Cash debt coverage ratio: It is a solvency ratio which defines the relationship between operating cash flow to its total liabilities. This ratio would be helpful in indicating the ability of the business to pay off the total liabilities from the total business operations.

$\text{Cash debt coverage ratio = }\frac{\text{Net cash provided by operating activities}}{\text{Average total liabilities}}$

To calculate: The free cash flow of the CS corporation.

(b)

To determine

To calculate: the current cash debt coverage ratio of CS Corporation.

(c)

To determine

To calculate: the cash debt coverage ratio of CS Corporation.