Joe Fat cat, an investment banker, states: “It is not worth my while to worry about detailed, long-term forecasts. Instead, I use the following approach when forecasting cash flows beyond three years. I assume that sales grow at the rate of inflation, capital expenditures are equal to depreciation, and that net profit margins and working capital to sales ratios stay constant.” What pattern of return on equity is implied by these assumptions? Is this reasonable?
Answer to relevant QuestionsJoe Watts, an analyst at EMH Securities, states: “I don’t know why anyone would ever try to value earnings. Obviously, the market knows that earnings can be manipulated and only values cash flows.” Discuss.What types of companies have:a. a high PE ratio and a low market-to-book ratio?b. a high PE ratio and a high market-to-book ratio?c. a low PE ratio and a high market-to-book ratio?d. a low PE ratio and a ...Calculate TJX’s cash payouts to its shareholders in the years 2011–2020that are implicitly assumed in the projections in Table 8-2. Geoffrey Henley, a professor of finance, states: “The capital market is efficient. I don’t know why anyone would bother devoting their time to following individual stocks and doing fundamental analysis. The best approach ...Financial analysts typically measure financial leverage as the ratio of debt to equity. However, there is less agreement on how to measure debt, or even equity. How would you treat the following items in computing this ...
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