Question

Gladys Inc. reported current assets totaling $65,800 and current liabilities totaling $28,750 at December 31, Year...

Gladys Inc. reported current assets totaling $65,800 and current liabilities totaling $28,750 at December 31, Year 2 The company’s income statement and statement of cash flow for Year 2 appear below:

Income Statement for Year 2

Sales

$283,200

Cost of goods Sold

$105,000

Depreciation Expense

$16,400

Other operating Expense

$60,500

Interest Expense

$6,300

Income Taxes Expense

$10,700

Net Income

$84,300

Statement of Cash Flow for Year 2

Operating Activites

Net Income

$84,300

Depreciation Expense

$16,400

Accounts Receivable

(4,750)

Inventory

$150

Accounts Payable

(3,050)

Income Taxes Payable

$1,350

Cash Flow from Operations

$94,400

Investing Activites

            Marketable Securities                                                             $1,000

            Equipment                                                                              (49,800)

            Cash flow for Investing                                                           (48,800)

Financing Activities

            Common Stock issued                                                            $9,500

            Note payable borrowings                                                       $9,950

            Note payable payments                                                         (8,750)

            Dividends paid                                                                        (15,500)

            Cash flow for Financing                                                          (4,800)

            Net increase in cash                                                                40,800

            Cash beginning of year                                                           $25,150

            Cash, end of year                                                                    $65,950

Calculate the following ratios and measures for Gladys Inc. for Year 2:

  1. Operating funds ratio
  2. Operating cash flow-to-current liabilities ratio
  3. Cash conversion ratio
  4. Earnings before interest, taxes, depreciation and amortization (EBITDA)
  5. Free cash flow
  6. Discretionary cash flow

What can you conclude about the cash flow health of Gladys Inc. from the ratios and measures?

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