Re: Interactive thread on investment-related questions
a bit advanced question
An analyst gathers the following information about two companies for the year ending 31
December 2008:
---------------------Company 1 ----------- Company 2
Dividend payout ratio ---- 37.5% --------------- 40.0%
Return on assets--------- 12% ---------------- 10.0%
Financial leverage -------- 1.6------------------ 2.0
Which of the following best describes the expected growth rate of Company 1? The
expected growth rate of Company 1 compared to Company 2 is:
A. lower.
B. greater.
C. the same.
P.S. if you want to keep it to basics ignore this one for a while
Re: Interactive thread on investment-related questions
Have provided info needed now (after visiting investopedia to refresh memory)
the information is incomplete for calculating OCF. with this info we can reach to CF before WC changes (unless company is using cash based accounting and not the Accrual based )
Re: Interactive thread on investment-related questions
a bit advanced question
An analyst gathers the following information about two companies for the year ending 31
December 2008:
---------------------Company 1 ----------- Company 2
Dividend payout ratio ---- 37.5% --------------- 40.0%
Return on assets--------- 12% ---------------- 10.0%
Financial leverage -------- 1.6------------------ 2.0
Which of the following best describes the expected growth rate of Company 1? The
expected growth rate of Company 1 compared to Company 2 is:
A. lower.
B. greater.
C. the same.
P.S. if you want to keep it to basics ignore this one for a while
Since leverage ratio > 1, it cannot be debt to capital. So I will assume it is debt to equity.
A
div 37.5
Inc 100
Roa 2%
Assets 833
D/ Ee 1.6
Assets = d + eq
Sq = 833/2.6= 320
Debt = 513
B
Div 40
Ear 100
assets 1000
eq 333
Debt 666
Company a generatesincome off lower asset base and its return on equity also slightly higher. So based On ROA and Return on eq! A grows faster than B if it can maintain these ratios.
Re: Interactive thread on investment-related questions
Correct!
Let us assume the company bought some equiment 8 years ago worth Rs 200000. Let us assume company depreciates this equipment over 20 years at rate of 10000 per year. This amount is deducted from profits when net income is calculated.
Assume each year company amortizes Rs 5000 in goodwill. The intersect paid on debt each year is Rs 2000. Income taxes Rs 8000.
What is operating income?
What is operating cash flow?
Looks like we have an investment guru here folks in the form of Ali.
Operating Income = NI + Taxes + Interest Cost (125 M +8000+2000)
You have adjust for net working capital changes to arrive at OCF ( Working capital changes means Change in Debtors, creditors etc)
you still have not provided the net working capital changes
for Statement of Cash Flows you need two Balance Sheets (op & Closing) and Income statement for the year if you are using indirect method or you need the details about cash received and paid during the year if you want to use Direct Method
You have adjust for net working capital changes to arrive at OCF ( Working capital changes means Change in Debtors, creditors etc)
you still have not provided the net working capital changes
for Statement of Cash Flows you need two Balance Sheets (op & Closing) and Income statement for the year if you are using indirect method or you need the details about cash received and paid during the year if you want to use Direct Method
Was away for few days. Just saw this.
What is the difference between interest cost and interest paid. Tax expense vs tax paid.
Re: Interactive thread on investment-related questions
Correct!
Let us assume the company bought some equiment 8 years ago worth Rs 200000. Let us assume company depreciates this equipment over 20 years at rate of 10000 per year. This amount is deducted from profits when net income is calculated.
Assume each year company amortizes Rs 5000 in goodwill. The intersect paid on debt each year is Rs 2000. Income taxes Rs 8000.
What is operating income?
What is operating cash flow?
Looks like we have an investment guru here folks in the form of Ali.
The receivables has increased by Rs 20000 and payables by Rs 10000.
Re: Interactive thread on investment-related questions
Was away for few days. Just saw this.
What is the difference between interest cost and interest paid. Tax expense vs tax paid.
sometimes Interest is not paid within the reporting period and taxes are usually paid after the period end (after assessment apart from advance taxes or tax deducted at source if any)
General purpose Financial statements are prepared based on Accrual concept. Interest and taxed accrued but not paid will effect IS but not Cash flows
Re: Interactive thread on investment-related questions
sometimes Interest is not paid within the reporting period and taxes are usually paid after the period end (after assessment apart from advance taxes or tax deducted at source if any)
General purpose Financial statements are prepared based on Accrual concept. Interest and taxed accrued but not paid will effect IS but not Cash flows