Corporate finance: Leverage & Working Capital

Degree of operating Leveragedo DOL?

• Sensitivity of operating income to changes in product demand at a given level of unit sales

• Sensitivity of Net income to

  changes in EBIT (Earnings before

  interests and taxes)

• Sensitivity of net income to

  changes in volume of sales,

• The point at which total costs equal total

  revenue

Degree of financing Leverage DFL?

• Sensitivity of operating income to changes in product demand at a given level of unit sales

• Sensitivity of Net income to

  changes in EBIT (Earnings before

  interests and taxes)

• Sensitivity of net income to

  changes in volume of sales,

• The point at which total costs equal total

  revenue

Degree of total Leverage DTL?

• Sensitivity of operating income to changes in product demand at a given level of unit sales

• Sensitivity of Net income to

  changes in EBIT (Earnings before

  interests and taxes)

• Sensitivity of net income to

  changes in volume of sales,

• The point at which total costs equal total

  revenue

If the economy is going well and it helps in sales, I rather invest in:

• Companies with high DOL and low DFL

• Companies with low DOL and high DFL

• Companies with low DOL and low DFL

• Companies with high DOL and high DFL

• Companies with low DTL

Fixed Costs 200

Interest Cost = 100

P=10

VCper unit=8
QBreakeven?
QOperating Breakeven?

• QBreakeven=100

  QOperating Breakeven=100

• There is no Breakeven

• QBreakeven=100

  QOperating Breakeven=150

• QBreakeven=100

  QOperating Breakeven=150

• QBreakeven=150

  QOperating Breakeven=100

Organize from more liquid to less liquid

• Inventories

  Receivables

  Fixed Assets

  Cash

  Money market

• Receivables

  Fixed Assets

  Cash

  Inventories

  Money market

• Cash

  Money market

  Receivables

  Inventories

  Fixed Assets

• Cash

  Money market

  Inventories

  Fixed Assets

  Receivables

• Fixed Assets

  Receivables

  Cash

  Money market

  Inventories

What are the primary source of liqudiity?

Puede escoger varias

• Liquidating assets

• Cash

• Short term investments securities

• Debt renegotiation

• File Bankruptcy

Diference between Current Ratio vs Quick Ratio

• The Quick Ratio includes inventory while Current ratio doesn't

• The Quick Ratio includes fixed assets while Current ratio doesn't

• The current Ratio includes fixed assets while quick ratio doesn't

• The current Ratio includes inventory while quick ratio doesn't

• The current Ratio and the quick ratio have different type of liabilites

What is the Operating Cycle and Cash conversion cycle using 360 days as reference:
Accounts Receivable Turnover = 3

Accounts Payables Turnover = 2

Inventory Turnover = 4

• Operating Cycle = 180
  Cash Conversion cycle = 120

• Operating Cycle = 30
  Cash Conversion cycle = 30

• Operating Cycle = 30
  Cash Conversion cycle = 210

• Operating Cycle = 210
  Cash Conversion cycle = 30

• Operating Cycle = 210
  Cash Conversion cycle = 210