Essay - Financial Management 9-1) the Degree of Financial Leverage is Ebit/ebt...

Financial Management

9-1) The degree of financial leverage is EBIT/EBT so 1,045,000 / 975,000 = 1.0717 a) earnings retained

P/E

Div. Payout

Div. Yield

Book value/share b) ***** dividend did not change over the study period. Therefore ***** *****s relate to the ***** and the stock price. A comparison of dividend yield and dividend payout shows that the company is earning less, but ********** stock price has gone up. Despite the lower earnings, the book value has increased as ***** company is still retaining some ***** their earnings, just not as much as they used to.

9.9) a) EPS = e*****rnings - preferred dividends / weighted average shares. So 200,000 ***** 10,000 for the *****p line; the ***** average ***** will be 45,000 factoring the new *****sue and adjusting for the split. This gives us 190,000 / 45,000 = $4.22 b) To compare the two EPS figures, we must adjust ***** ***** split. This makes the previous year's adjusted ***** $4. The earnings per share ***** by $0.22 in ***** past year.

Data

***** Flows Classification

Effect on Cash

O*****ating *****ctivity

***** Activity

Financing Activity

Increase

Decrease

N*****cash Transaction

Net Loss

Increase Inventory

Decrease receivables

***** prepaid insurance

Issue common stock

*****. L*****, notes payable

Acq. Land, cash

Pay cash dividend

Pay income tax

Retire bonds, *****

Sell Equip. for cash

*****) Arrow*****ll's short term debt position is poor. *****y have a current r*****tio of 0.845, which ***** not healthy but could be manageable. Ho*****ver, further analysis indicates they have a quick ratio of 0.487 and a cash ratio ***** just 0.120. A significant amount of their current assets are in inventory. No matter their ***** turn, that is not a reliable source ***** quick cash. The ***** flow from operating activities over current po*****n of long-term ***** is just 0.469. This means they do not generate sufficient operating cash flow in a ***** to meet even half ***** their debt needs.

A b) If was a supplier of Arrow*****ell, I would be concerned about their short-term debt position. I would need assurances ***** they ***** restructuring their long-term debt be*****e selling to them on credit right now.

A c) Arrowbell's long term ***** position is reasonable. They ***** a debt r*****tio of.608; ***** a debt/equity ratio of 1.552. The debt to tangible net worth ***** 1.589; the operating ***** flow ***** total debt is 0.163. ***** first three figures are not unreasonable, and do not indicate financial stress. The last number ***** that ***** company may be over*****d, in that it would take several years at their ***** rate ***** cash flow generation to pay off their exist*****g debts.

A d) If I ***** a b*****nker, I woul***** be concerned about this company taking out a loan to continue *****s expansion program. The overall debt load is ***** a major concern, but I would be wary of ***** ***** flow *****. I would ***** to feel more confident that the ***** would ***** able ***** generate significant cash flow