Reading 48, Q35, financial flexibility, FI/Credit Analysis


I am confused between choice A & C.

  1. Based only on FFO/Total debt and FOCF/Total debt ratios for 2006 through 2008 in Exhibit 2, which of the following is the most likely conclusion that can be drawn regarding Fiber Optics?

A. The financial flexibility of the company has improved. B. Reliance on outside funding for financing has declined. C. Internally generated sources of funding have grown at a faster rate than external sources. Answer: A is correct. Both FFO/TD and FOCF/TD have been increasing, indicating improved financial flexibility for the company. If A is correct, the funds should have come from operational performance. Even if it is manipulated earnings, why not answer C is correct?Is there a specific reason why C is most likely wrong? Thanks in advance.