Question 2

The cash-flow-to-net-income ratio for 20X2 is 2.45.

This ratio is calculated by dividing cash from operations by net income. In this case, $5,964 divided by $2,430 results in a cash-flow-to-net-income ratio of approximately 2.45.

A) 1.35

This option is incorrect because it significantly underestimates the ratio. A cash-flow-to-net-income ratio of 1.35 would imply that cash from operations is only slightly higher than net income, which does not align with the actual calculation of $5,964 divided by $2,430.

B) 2.45

This option is correct as it accurately reflects the calculation of the cash-flow-to-net-income ratio. With cash from operations of $5,964 and net income of $2,430, the resulting ratio is 2.45, indicating that cash flow from operations is more than double the net income.

C) 2.01

This option is incorrect because it underrepresents the ratio derived from the provided figures. A cash-flow-to-net-income ratio of 2.01 suggests that cash from operations is only slightly more than double the net income, which is not supported by the actual calculation.

D) 1.8

This option is also incorrect as it implies a lower ratio than what is calculated. A cash-flow-to-net-income ratio of 1.8 would indicate that cash from operations is less than 1.8 times net income, which contradicts the result of 2.45.

Conclusion

The cash-flow-to-net-income ratio for 20X2 is definitively 2.45, demonstrating that cash from operations is significantly higher than net income. All other options fail to accurately reflect the relationship between cash flow and net income based on the provided data, confirming that the correct answer is the only one that aligns with the actual calculation.