Asset valuation partial 2

In order to valuate or analize the situation of a company, at which figure should we pay more attention?

• At profit after tax because it gives the exact information of what is the result of a company in a given time.

• At cash flows, because it is a single figure that cannot be easily manipulated or alterated.

• At net income because is always a single figure that cannot be easily manipulated.

• At EBITDA because it presents the result of all the activities of the company in a comprehensive maner.

What are the three definitions of cash flows?

• Operating cash flow, investing cash flow and financing cash flow.

• Equity cash flow, capital cash flow and future free cash flow.

• Standard cash flow, extraordinary cash flow and free cash flow.

• Equity cash flow, free cash flow and capital cash flow.

What is the free cash flow?

• It is the cash flow generated by the activities of the company after paying taxes, interest expenses and amortizations.

• It is the cash flow generated by the activities of the company after paying taxes, interest expenses and amortizations.

• It is the cash flow generated by operations after tax, without taking into account the company’s debt level, that is, without subtracting the company’s interest expenses.

• Is the cash flow that is not taxed so the management is free to use it without informing the taxing authorities.

What are the sections including in the Statment of Cash Flows?

• Operating activities, investing activities and financing activities.

• Operating cash flows, equity cash flows and free cash flows.

• Capital cash flows, equity cash flows and free cash flows.

• State of income cash flow and balance sheet cash flow.

What type of information do we obtain from the current liability coverage ratio?

• It informs about the company´s profitability.

• It informs about the company´s equity management practices.

• It informs about the company´s capital structure.

• It informs about the company´s debt management practices.

How do we interpretate the free cash flow/operating cash flow ratio?

• The higher the ratio, more profitable the company is.

• The higher the ratio, the greater the financial strength of the company.

• The lower the ratio, the greater the financial strength of the company.

• If it drops below 1, the company is unable to pay the current liabilities.

What does the operating cash flow ratio shows?

• How many dollars of cash are obtained for every dollar of sales.

• How many dollars are spent to operate the company for each dollar of equity.

• How many dollars are available to expand the operations of the company.

• How many dollars are used to pay the shareholders for each dollar of equity.

What does an interest coverage ratio below 1 tells us about a company?

• That the company has a low systematic risk.

• That the company has a low profitability.

• That the company has a high risk of default.

• That the company has a high systematic risk.

What are the main methodologies to estimate the growth of a company?

• Historical growth rate, analyst forecast and fundamental growth rate.

• Fundamental growth rate, relative growth rate and contingent growth rate.

• Equity growth rate, capital growth rate and operating growth rate.

• Stable growth rate, high growth rate and changing growth rate.

Which one of the following is NOT a technique to calculate historical growth rates?

• Arithmetic average.

• Geometric average.

• Regression model.

• Capital asset pricing model.