WorksheetsC2.01 Quick Q
Total questions: 10
Worksheet time: 15mins
The company’s ROE
Will decrease if the company’s CGS/Sales ratio declines
Will increase if the company’s SGA/Sales ratio declines
Will increase if the company prefers long-term debt vs. short-term debt
Will increase if the company’s Revenues/Avg.-Assets ratio declines
A company’s Return on Equity (ROE)
Will increase if the company avoids debt and fund itself entirely from equity
Will increase if operating costs decline, relatively to trends in revenues
Will decrease if it decides to take on more debt relative to equity
Will decline if the company’s asset-turnover (productivity) ratio is rising
For analysts, EBITDA is useful as a metric because it measures:
The amount cash in reserves on the balance sheet
The amount of current liabilities on the balance sheet
The amount of cash available after allotments for capital expenditures
An approximation of operating cash flow before capital expenditures, debt service and tax obligation
As the company improves performance and earnings grow, if the company pays out a steady proportion in dividends and buys back shares, what happens to the level of equity capital?
Equity capital will grow at the same amount of earnings reported
The growth of equity capital will be restricted, or equity remain the same or even decline
The equity capital account remains the same no matter dividend-payout policy
Equity capital will grow at the same amount of increases on the balance sheet
“Working investment” (or “net working capital”) is measured as
(Cash + inventory) – (Payables + Accrued expenses)
(Inventory – Receivables) + (Payables – Expenses)
(Inventory + Accounts Receivable) – (Accrued Expenses + Accounts Payable)
(Accounts Receivable + Cash)/Short-term debt
What statement best describes Debt/Ebitda?
Debt/Ebitda estimates the minimum amount of time in years it will take to pay down all debt from operating cash flow
Debt/Ebitda measures whether there is sufficient equity cushion on the balance sheet
Debt/Ebitda measures the length of time in the asset-conversion cycle
Debt/Ebitda measures the amount of short-term debt on the balance sheet
Decreases in “Inventory Days on Hand” imply
The company cannot afford to fund inventory purchases
The company has much more cash on hand
The company is selling off inventory more quickly and managing inventory levels efficiently
The company has rising tax obligations
If the measure of “Payables Days on Hand” decreases, this may imply
Suppliers and vendors are granting more lenient terms
Suppliers and vendors have concerns about the company’s financial soundness and, therefore, are becoming stricter with terms
Suppliers and vendors are not sure about the health of the company—whether it’s improving or deteriorating
Customers of the company are indifferent to the company’s condition
Debt-service payments are the sum of the following:
Dividend payments + Equity buybacks
Non-cumulative preferred dividend payments + Interest payments
Interest payments on subordinated debt + Preferred dividend payments
Principal payments on debt + Interest payments on the same debt
Which Debt/Net-operating-cash flow ratio below suggests the company is at risk of not being able to amortize debt as scheduled? balance sheet?
0.7
1.3
12.4
3.2
