Even though the acid-test ratio is less than 1 which rates in the lower third quartile in the industry of 1.6, 0.9 to 0.6, it indicates a concern with repaying current liabilities. This could be due to quick expansion of inventory with the intention of increasing sales. While this is currently considered a weakness and is concerning, a rise in the ratio should be seen by 2013 due to the increase of suggested sales. 3. I calculated an “inventory turnover ratio” which measures the number of times a company sells its inventory during a year.
• A financial asset is considered to have value if it has the ability to generate positive cash flows. • A financial asset is considered to have value if it is acquired at its market value • A financial asset is considered to have value if it is acquired a its book price. When determing the value of a firm, which of the following statements is true? • The timing of cash flows a firm can generate is very important in determing the value of a firm. All else being equal, cash received sooner is better.
Based on that, Corporation B is desirable to Corporation A as it has a greater net present value. The Internal Rate of Return (IRR) is defined as the discount rate that equates the present value of the project’s free cash flows with the project’s initial cash outlay (Keown, A. J., Martin, J. D., & Petty, J. W. (2014). Based on the Internal Rate of Return rule, an investment is suitable if the Internal Rate of Return exceeds the required return, it should be rejected otherwise. Based on that, Corporation B is preferred over Corporation A since the former has a higher Internal Rate of Return. Examining the above, the Net Present Value and the Internal Rate of Return are closely related.
Executive Summary The recommendation for Teletech Corporation is to change from a constant hurdle rate to the use of two risk-adjusted hurdle rates, one for each segment. Teletech’s performance is evaluated upon economic profit calculations. Through this performance measure, the risk-adjusted hurdle rates return a higher amount of profit in comparison to a single corporate hurdle rate: Currently, the firm has been using the constant hurdle rate of 9.30%, and as a result the firm’s share prices are stagnant. In comparison, the market and industry indexes such as telecommunications and telecommunication equipment have outperformed Teletech. Their price-to-earnings ratio is also below investor’s expectation in comparison to the company’s risk.
A rising ROE suggests that a company is increasing its ability to generate profit without needing as much capital. It also indicates how well a company's management is deploying the shareholders' capital. In other words, the higher the ROE the better. Falling ROE is usually a problem. CAGR: Operating income, % Operating income (EBIT) measures a company's earning power from ongoing operations and it largely used by investor because it excludes the effects of different capital structures and tax rates used in different companies.
Running Head: HOW DOES AN OPERATING BUDGET WORK? 1 How Does an Operating Budget Work to Discipline a Firm’s Management? Primarily, the goal of any firm is to stay in business by accumulating more money than it is spending to manufacture the products and services it provides. An excellent blueprint created to ensure the achievement of this goal is an operating budget. The operating budget is a detailed projection of a firm’s income and the expenses it will incur to generate that income in a specified period of time which is usually a year.
Explain how an increase in federal budget deficit due to recession can stabilize the economy. A deficit means that the government spends more than it receives in tax revenues in a given year (O’Sullivan, Sheffrin, & Perez 2010, p. 374). The total deficit is spending, plus all the interest payments on top of the original debt, minus the total tax revenue (http://www.blurtit.com). There are three factors, known as automatic stabilizers, that affect and stabilize the economy, they are: 1) government purchases of goods and services, such as public safety, government transfer of payments, and unemployment insurance, 2) Medicaid or Medicare etc.,and 3) the collection of taxes. If the government cut taxes or increases transfer payments such as unemployment insurance and food stamps this helps to offset the decrease in household income.
Suppose one of GP Manufacturing’s executives typically uses the payback as a primary capital budgeting decision tool and wants some payback information. a. What is the project’s payback period? Projected payback period = 4.28 (cell B73) b. What is the rationale behind the use of payback as a project evaluation tool?
With these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone. Here the issue is of financing the merger. A firm’s optimal capital structure is that mixture of debt and equity than minimizes its weighted average cost of capital (WACC). Since the after-tax cost of debt is lower than equity for many corporations. It turns out that, while debt reduces a company’s tax liability because interest payments are deductible expenses, increasing amounts of debt raise both the cost of equity capital and the interest rate on debt because of the increasing probability of bankruptcy.
If the gross profit falls from one year to the next or is thought to be too low the firm may need to decrease the costs of its purchases or may try to increase the sales without increasing the cost of the goods sold. The same thing applies to the net profit margin if it is too low or falls year on year then the business may need to look for cheaper premises or cut staffing costs. Return on Capital Employed will be used to see if an investment is worth the capital outlay, if the return from the capital outlay is higher than the interest offered by banks for money invested then the outlay is justified. you then have to talk about Liquidity,The Debtors’ and creditors’ and then an overview of it all