A firm’s value depends on the positive net income generated in the past. True False A firm’s value depends on the firm’s ability to generate positive cash flows now and in the future True False When determining the value of a firm, which of the following statements is true? • Inversters are risk neutral. Other things equal they prefer to pay more stocks that are less risky and have uncertain cash flows • Investers love risk. Other things equal they prefer to pay more for stocks that are more risky and have uncertain cash flows.
3) The sales budget is to estimate the profitability. As we know, sales budget is used to structure the company in a way to maximize profits. With an accurate projection of future sales, the company is actually can save the expenses and protects the company from failing. If the sales projection is overstated, the president has to decide whether to proceed or to have other alternative planning.
Investors find this information lucrative because the more expendable cash a company has the more likely they are to pay out in dividends for the stock holders.. Liquidity Ratios: Current assets are a business's total current assets divided by its total current liabilities. Total Current Asset / Total Current liabilities 1,971,000 / 116,290 16.949 = 16.9 Current Ratio- 16.9:1 or 17:1 (16.9 to 1 or 17 to
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.
There are 2 types of people controlling large companies: managers are responsible for running the company and they receive a salary for doing it; the owners or shareholders are the ones who invest into a firm and aim to maximize their profit. Traditional economic view of profit maximization is the short or long run process by which a firm determines the price and output level which as a result gives the largest profit. Therefore there are 2 types of profit: normal profit which is the level of profit which will keep the owner pleased and super normal profit which will be extra profit to normal one. That is why in most of cases managers are operating in order to achieve normal profit and keep the owners happy. In short run profit maximization will increase however in long run it is harder to increase companies profit because they will need perfect information in order to prevent the risk of the market.
Employee benefits are better when the company is netting positive amounts. Investors benefit by seeing the statements because they can project profit and loss trends. Investors do not want to ever lose money. Creditors or suppliers make their assessment of how much credit they are willing to extend. Retained earnings are “the net income retained in the corporation” (Kimmel, Weygandt, & Kieso, 2009, pg.
The Home Depot cash flow shows significant net earnings and the cash flow statement does not indicate a drastic drop from previous years. A potential investor would find this information important when evaluating the company. This information would allow investors an insight into how The Home Depot manages its cash in light of potential losses in the revenue
Without proper cash management and regardless of how fast a firm’s sales or reported profits on the income statement are growing, a firm cannot survive without carefully ensuring that it takes in more cash than it sends out the door. When analyzing a company's cash flow statement, it is important to consider each of the various sections that contribute to the overall change in cash position. In many cases, a firm may have negative overall cash flow for a given quarter, but if the company can generate positive cash flow from its business operations, the negative overall cash flow is not necessarily a bad
From the aspect of target management, golden parachutes benefit them by providing them with compensation in the event of a change in power. It also allows management to take a greater level of risk without the fear of them losing their jobs. In Incentives and Innovation: Evidence from CEO Compensation Contracts, the authors mention that because of golden parachutes, managers are willing to take more risk and negotiate the best terms possible during a corporate takeover. b) In, What Matters in Corporate Governance, the author’s state “golden parachutes may also produce benefits for shareholders by making incumbents more willing to accept an acquisition and increasing the likelihood of an acquisition.” So in the event of a takeover the shareholders best interest are kept in mind. Also by providing golden parachutes companies attract the best executives around.
The problem with this scheme is that it works by stifling innovation and competition. The wealthy stay wealthy by extracting value instead of creating it. The more value they extract, the more laws they write protecting the rights and privileges of the extractors. As companies like General Electric realized, it was better to sell off productive assets and become more like a bank. The system was created for people who have money to make money.