Being able to track sales compared to the previous years’ numbers is a valuable tool in being able to track business. They use this information to forecast on where they think the business will be heading in the next week, month, or year. If the debt percent gets to high then they need to adjust the amount of liabilities that they have to bring that number down. Knowing the times interest earned ratio allows the managers to know at what percent the company is earning interest on its net income. 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..
Memorandum To: Kimi Ford From: xxxxx Date: 6 July, 2001 Subject: Nike’s cost of capital The firm’s cost of capital is the opportunity cost of an investment, which provides a benchmark of firm uses of capital against the capital market alternatives. It is important to estimate a firm’s cost of capital because there will be no economic value created for the investors if the firm earn below its cost of capital. In another word, cost of capital is the minimum required rate of return set by the investors. WACC, as a common practice of expressing a firm’s coast of capital, calculates the weighted average of the cost of individual sources of capital employed. My evaluation of Nike’s share price is based on Joanna Cohen’s analysis.
What is the project’s net present value? When attempting to finance a project, it is important to know the financial health of the company. The net present value aids with analyzing the profitability of a project. It demonstrates the difference between the present value of the cash inflows and the cash outflows (Titman, Keown, & Martin, 2011). When a negative net present value is obtained, it is a sure indicator that the firm should not continue to invest in a project.
Ease of raising capital. ii. Disadvantages- Double taxation. Cost of set-up and report filing c. Going public d. A manager’s primary objective should be to maximize shareholder wealth which also means maximizing stock prices. a.
What is the project’s NPV? Explain the economic rationale behind the NPV. Could the NPV of this particular project be different for GP Manufacturing than for one of Chino Material Systems Inc.’s other potential customers? Explain. NPV = $205,761 By using Net Present Value, investors can determine the expected profitability of a project.
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.
The higher the ratio the more assurance exists that the retirement of current liabilities can be made. The current ratio measures the margin of safety available to cover any possible shrinkage in the value of current assets. Normally a ratio of 2 to 1 (2.0) or better is considered good. Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm's assets are working to grow the business.
Profit Maximization is the process that a firm uses to establish where the best output and price levels are, in order to maximize its return. There are two primary methods that can be used to establish profit maximization. One method is the Marginal Revenue minus the Marginal Cost (MR-MC) method. When utilizing this method economists assume that profit would be at its highest when MR and MC are equal, which denotes that for every item made MP=MR-MC. When / if MR is higher than MC then MP would result in a profit for Company A.
Ans): Laddering GIC(s) is a proven method of investing (also known as a laddering strategy) it can help you reduce the risk of interest rate fluctuations and increase your portfolio's overall return. Pros will be higher returns, every year 20% of your portfolio will mature and it decreases the cons of non-cashable GIC(s). Cons will be a bit more work and attention needed by the
The profit percentage of assets varies by industry, but in general, the higher the ROA the better. We can see a good trend over years in the company. Comments: Return on equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders' equity. The formula for ROE is: ROE is more than a measure of profit; it's a measure of efficiency. A rising ROE suggests that a company is increasing its ability to generate profit without needing as much capital.