Question

In: Operations Management

It is incorrect to make holistic conclusions about a company after looking at only one of...

It is incorrect to make holistic conclusions about a company after looking at only one of the three financial documents. Prove this by giving one example to disprove each of the following statements:

• A company, DOPE Inc., claims it has been performing really well because last cash flow statement shows a remarkably high positive cash flow.

• Mr. BLING, who is an entrepreneur with a really high net worth, must be so rich (i.e. has so much cash at hand).

• LIT L.L.C., a private consultation start-up in the smart grid industry, must be failing because its EBITDA over the last three years have been reported as zero.

• A land developer company LONO, must be in good financial health because they recently purchased 1,000 acres of land.

Solutions

Expert Solution

A Thumbs Up! Would be really helpful for me. If you have any questions, please leave a comment and I will get back to you as soon as possible.

Case1: it is not necessary that if a company is having high positive cash flow then, it has been performing really well. We can't say this only seeing it's cash flow.

For example: If a company has high debt ratios, your revenue is not growing, profitability ratios are not high, then it has not been performing really well.

Case2: we can't say entrepreneur must have so much cash at hand just because he has a high net worth.

For example: if the person has invested his money in different projects, its assets other than cash in hand are high, then his net worth will be more even if his cash in hand is low.

Case 3: just because the private consultation has zero EBITDA over the last 3 years, then it must be failing, because it does not include the working capital of the company. Moreover it is the short-term concept.

Eg: there are chances that if the working capital of a company is good, but still EBITDA is zero, and thus, EBITDA cannot decide whether a company is failing or not.

Case4: it is not necessary that a company is in good financial health just because they purchased 1000 acres of land.

Eg: if a company used outside debt to purchase the land, then there are fat chances that its financial health is not good.


Related Solutions

Which of the following statements about insulin is INCORRECT? The leader sequence is cleaved off after...
Which of the following statements about insulin is INCORRECT? The leader sequence is cleaved off after membrane transport. a.) The disulphide bonds form after the final proteolytic cleavage to yield mature insulin. b.) It is stored in the pancreas in an inactive form. c.) In the active form it has two polypeptide chains joined by disulphide bonds. d.) It is synthesized as a random coil single chain on membrane-bound ribosomes.
Please mark the only INCORRECT sentence about the term structure of interest rates (the yield curve)...
Please mark the only INCORRECT sentence about the term structure of interest rates (the yield curve) a. If there is no liquidity risk premium and traders expect the Fed to keep Fed Funds unchanged for years to come, then the yield curve is likely to be flat b. A zero coupon bond is equal to the sum of several coupon bonds of the same yield and the same maturity c. If traders expect that the US economy will start growing...
Mark the only incorrect statement about the effect of bankruptcy risks. Group of answer choices Bankruptcy...
Mark the only incorrect statement about the effect of bankruptcy risks. Group of answer choices Bankruptcy risk makes the afte-tax cost of debt increasing in the debt-equity ratio Bankruptcy risk makes the WACC a U-shaped function of the debt-equity ratio Financial distress cost reduces the value of the firm if the debt is too large Bankruptcy risk increases the unlevered cost of capital
For the 3 companies, what conclusions can you make about the trends? 2014 2015 2016 2017...
For the 3 companies, what conclusions can you make about the trends? 2014 2015 2016 2017 2018 Stock Price Ford $15.50 $10.95 $10.61 $11.62 $7.52 General Motors $29.67 $29.49 $32.16 $42.66 $33.46 Honda $26.70 $29.40 $27.70 $22.89 $26.44 PE Ratio Ford 15.50 6.93 9.23 6.02 8.17 General Motors 17.98 4.99 5.36 n/a 6.05 Honda 8.67 11.95 12.31 4.41 7.07 EPS Ford $1.00 $1.58 $1.15 $1.93 $0.92 General Motors $1.65 $5.91 $6.00 -$2.60 $5.53 Honda $3.08 $2.46 $2.25 $5.19 $3.74
Which one of the following statements about bond strengths and bond lengths is incorrect?
What determines a strength and length of a bond? Which one of the following statements about bond strengths and bond lengths is incorrect? a) A carbon-oxygen single bond is longer than a silicon-oxygen single bond. b) A carbon-oxygen single bond is longer than a carbon-fluorine single bond. c) A sulfur-hydrogen bond is weaker than an oxygen-hydrogen bond. d) A silicon-silicon bond is longer than a carbon- carbon bond. e) A carbon-iodine bond is longer than a carbon- bromine bond.  
1. Which of the following statements about nitrogen gas is incorrect ? Select one: a. it...
1. Which of the following statements about nitrogen gas is incorrect ? Select one: a. it expands when its temperature is increased at constant pressure b. the distance between particles is about the same as for liquids c. the pressure is proportional to the concentration of particles present d. it expands to fill its container e. it is less dense than iron 2. What is the minimum volume of 0.1060 M AgNO3 that must be reacted with 100.0 mL of...
which one of the following statements is most incorrect about the strengths of cohort studies 1....
which one of the following statements is most incorrect about the strengths of cohort studies 1. cohort studies measures the risk of developing a disease 2. cohort studies enable researchers to assess a range of diseases associated with the exposure being studied or investigated 3. in cohort studies, the exposure precedes the disease 4. cohort studies measures the incidence of a disease 5. in cohort studies, the exposure does not precede the disease and thus enables the researcher to ascertain...
Which is(are) INCORRECT about the general elution problem? I           It states that one set of conditions is...
Which is(are) INCORRECT about the general elution problem? I           It states that one set of conditions is not suitable to separate a complex mixture of analytes in a reasonable amount of time. II         It is overcome in GC using an isothermal separation III        It is overcome in LC using gradient elution IV        It is overcome in GC using a temperature program A. I and II B. II C. I, II, and IV D. III, and IV E. IV
Select the incorrect statement about ADH. Select one: a. It stimulates reabsorption of water b. It...
Select the incorrect statement about ADH. Select one: a. It stimulates reabsorption of water b. It is not secreted if the body consumes large amounts of water c. It is secreted if the body fluids become hypertonic d. It is produced by the distal tubule e. It is also called vasopressin
Which of the following statements about Na+ -K+ pump is incorrect? Select one: A. The Na+...
Which of the following statements about Na+ -K+ pump is incorrect? Select one: A. The Na+ -K+ pump is an antiport that moves the ions against their concertation gradient. B. The Na+ -K+ pump is an example of secondary active transport.   C. The Na+ -K+ pumps potassium against its concentration gradient. D. The Na+ -K+ pump moves Na+ out of the cell and K+ inside the cell. E. The Na+ -K+ pumps sodium against its concentration gradient. In general, transport...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT