Financial analysis

Question 1

Return on equity =

Answer 1

profit before tax

Question 2

dividend payout, yes or no?

Answer 2

capital spending plans? access to funding?
payout can signal confidence, though berkshire never had one
Better: price earnings ratio: tells you how highly a share is priced

Question 3

what is asset backing?

Answer 3

Assets minus liabilities = book value
total value of a company´s shares, in relation to its assets
does is just have a high share price?

Question 4

what is the interest cover?

Answer 4

can a business pay its interest?
relevant for banks, lenders
depends on the prevailing economic climate
operating profits / interest payable

Question 5

name risk of financial leverage :)

Answer 5

1. EPS rises, faster growth
2. increases interest expenses, but are tax deductible
3. risk of going bankrupt, debts have to be paid back, share price may fall