Week 5

Question 1

Earnings Per Share measures…

Answer 1

Profit produced scaled by shares outstanding

Question 2

X trades on a P/E multiple of 22x, whereas Y trades on 16x. What can we conclude?

Answer 2

• Y is cheaper than X
• X is more expensive than Y
• Y would be more attractive to a value investor, X to a growth investor
• You would want to have access to industry multiples to make a more informed decision
• Suggest (but can’t conclude): Y is more risky than X
• Suggest (but can’t conclude): X is expected to grow more quickly than Y

Question 3

What is enterprise value?

Answer 3

Value of equity + value of debt

Question 4

What do we mean by liquidity?

Answer 4

Their ease of access to cash.

Question 5

Current ratio

Answer 5

Current assets / Current liabilities

Question 6

Quick acid test ratio

Answer 6

(Current assets - Inventory)/ Current liabilities

Question 7

Cash conversion cycle

Answer 7

Anrold, 2013

Question 8

Stock-conversion period

Answer 8

Inventory / COGS x 365

Question 9

Debtor-conversion period

Answer 9

Accounts receivable / sales x 365

Question 10

Credit period granted by suppliers

Answer 10

Accounts payable / COGS x 365

Question 11

What is the calculation for Net Debt?

Answer 11

Question 12

Gearing

Answer 12

Debt/(Debt+Equity) x 100%

Question 13

Interest cover

Answer 13

Operating profit / Finance charges

Question 14

Total debt ratio

Answer 14

cash generated by operations / total liabilities

Question 15

What are CFO, CFI and CFF?

Answer 15

The cash flow statement shiws where the firm’s cash is coming from and where it’s going. All of that cash is tracked in one of three places:

Operating (CFO)

Investing (CFI)

Financing (CFF)