Question

if a business has an operating cash flow ratio of 1/3, which of the following is true? there is $1 generated for every $3 in current liabilities. there are $3 generated for every $2 in current liabilities. there are $5 generated for every $1 in current liabilities.

Explanation:

The operating cash flow ratio is calculated as (Operating Cash Flow) / (Current Liabilities). A ratio of \( \frac{1}{3} \) means for every $3 of current liabilities, $1 of operating cash flow is generated (since \( \frac{\text{Cash Flow}}{\text{Current Liabilities}}=\frac{1}{3} \) implies Cash Flow \( = \frac{1}{3} \times \) Current Liabilities; so if Current Liabilities is $3, Cash Flow is $1). The other options do not match the ratio \( \frac{1}{3} \).

Answer:

A. There is $1 generated for every $3 in current liabilities.