Growth analysis

Question 1

Which of the following is true for growth in sales?

a) Shareholders perceive growth to be attractive as it allegedly creates value
b) Lenders are interested as growth creates a need for liquidity
c) Suppliers are keen to sell their products to growth companies
d) Employees see growth companies as dynamic and challenging: an appealing work environment
e) All of the above

Answer 1

e)

Question 2

What is the formula for the sustainable growth rate?

Answer 2

g=[ROIC+(ROIC-NBC)NIBD/E]Minority interests share*(1-PO)

Question 3

What is true about the relationship between the payout ratio and the sustainable growth rate?

a) As PO increases, g also increases
b) As PO increases, g decreases
c) As PO decreases, g also decreases
d) As PO increases, g is not affected

Answer 3

b)

Question 4

What is true about the relationship between ROIC and NBC?

a) ROIC>NBC⇒ financial leverage contributes positively to the sustainable growth rate
b) ROIC<NBC⇒ financial leverage contributes positively to the sustainable growth rate
c) ROIC<NBC⇒ financial leverage contributes positively to the sustainable growth rate
d) ROIC<NBC⇒ financial leverage contributes negatively to the sustainable growth rate

Answer 4

a+d)

Question 5

Which two performance measures are used for value creation?

a) Free Cash Flow
b) Economic Value Added
c) EBITDA
d) Residual Income

Answer 5

b+d)

Question 6

When is residual income obtained?

a) ROE < r_e
b) ROE = r_e
c) ROE > r_e
d) ROE > WACC

Answer 6

c)

Question 7

How can growth in EVA be obtained?

a) Optimising existing operations (only long-term creation)
b) Optimising existing operations (only short-term)
c) Reduce WACC
d) Growth in invested capital
e) Optimising existing operations (both short- and long term)
f) Increase WACC

Answer 7

b, c + d)

Remeber that
Long-term growth in EVA must come from investments in profitable business projects

Question 8

What is true about sustainable growth?

a) The higher the correlation between growth in revenue today and growth in revenue the following years, the more stable growth
b) Based on empirical results from S&P500, it is a clear tendency that an atypically high or low revenue growth rate for a portfolio of companies, is quickly followed by more normal growth rates. After no more than 3-4 years, sales growth converges towards a long-term average value
c) Larger correlation coefficients for ROIC when calculated on both permanent and transitory items together
d) All of the above

Answer 8

d) All of the above