Question: James Broker an analyst with an established brokerage firm comments
James Broker, an analyst with an established brokerage firm, comments: “The critical number I look at for any company is operating cash flow. If cash flows are less than earnings, I consider a company to be a poor performer and a poor investment prospect.” Do you agree with this assessment? Why or why not?
Relevant QuestionsIn 2005 IBM had a return on equity of26.7 percent, whereas Hewlett-Packard’s return was only 6.4 percent. Use the decomposed ROI framework to provide possible reasons for this difference based on the databelow:What are the potential benchmarks that you could use to compare a company’s financial ratios? What are the pros and cons of these alternatives?Consider the following two earnings forecasting models: Et(EPSt+1) is the expected forecasts of earnings per share for year t+1, given information available at t. Model 1 is usually called a random walk model for earnings, ...Free cash flows (FCF) used in DCF valuations discussed in the chapter are defined as follows:FCF to debt and equity = Earnings before interest and taxes × (1-tax rate) + Depreciation and deferred taxes-Capital expenditures ...Calculate the proportion of terminal value to total estimated value of equity under the abnormal earnings method and the discounted cash flow method for the Scenario 2 results shown in Table 8-6. Why are these proportions ...
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