Comment critically on the following statement: ‘Equity only increases or decreases as a result of the owner
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- Comment critically on the following statement:
‘Equity only increases or decreases as a result of the owners putting more cash into the business or taking some out.’
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- Can a company have a high net income but not enough cash to pay its bills? Explain your response. Give me one scenario or example to support your response.Examine the key reasons why a business may not want to hold too much or too little working capital. Provide examples that illustrate the consequences of either situation. Explain alternative ways a business can use free cash flow. Provide examples.The primary goal of financial management is Select one: a. Increasing the owners wealth b. Reducing risk c. None of these d. Increasing profit
- Explain what is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become riskier.Is it better to finance a company thru debt or thru equity? Why? What are the downside and upside to each?What is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become more risky.
- Which of the following statements is FALSE?i. Using the payback rule, you can calculate how much profits are earned over the investment period.ii. The IRR is sensitive to the timing of the cash flows.iii. Shareholders have the first claim on the cash flows of the company.Do you agree with each of the following statements? Explain. •EBITDA makes companies with asset-heavy balance sheets look healthier than they may actually be.•EBITDA portrays a company’s debt service ability— but only some types of debt.•EBITDA isn’t a determinant of cash flow at all.Leverage is a. The ability to earn a satisfactory return on the investments in the business. b. The ability to pay current debts when they come due. c. The proportion of debt to stockholders' equity. d. Also called profit margin.
- A business can be valued by capitalizing its earnings stream. Does one measure make more sense than the others? What factors would make a stock worth more or less than your calculated value?When we compute the EV/EBITDA multiple, i.e. the ratio of Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization, we estimate the enterprise value of a firm by adding the values of debt and equity and netting out cash. Could you provide a reason for netting out cash? O a. Cash can be used to pay down debt. O b. Cash is easy to value. O c. None of the given answers is correct. The income from cash is not part of EBITDA. Cash is liquid. O d. O e.What types of transactions reduce owners equity? What types of transactions reduce retained earnings? What do they have in common?