Question

1- Why might a company decide not to pay out all of its free cash flow in dividends?

1. he company may need to purchase more inventory due to strong sales demand.

2. The company may want to buy a competitor.

3. The company may need to repair or replace some existing equipment.

4. Management may have decided that employees need a raise

2- Of the following, which ratio would be the best ratio to judge the financial leverage of a firm?

1. Debt-to-equity ratio

2. Times interest earned

3. Net debt to free cash flow

4. Debt ratio

3- What does a falling account receivable turnover ratio mean?

1. Management is becoming more efficient in managing collections.

2. Net sales are growing faster in relation to accounts receivable.

3. The amount of money needed to fund working capital is growing.

4. Accounts receivable will a source of cash on the cash flow statement

4- The Securities and Exchange Commission's main goal with a prospectus is to:

1. insure investors that it is a legitimate company.

2. make sure full disclosure to investors has been made.

3. identify for investors the fair value of the company.

4. identify companies that do not have the proper capital structure

Answer 1

question no: [1] WHY MIGHT A COMPANY DECIDE NOT TO PAY OUT ALL OF ITS FREE CASH FLOW IN DIVIDENDS ?

answer : The company may need to repair or replace some exsiting equipments.

[ One of the reason that company may suspend its dividends is due to unexpected one time expenses that causes reduction in profits. The need to repair / replace the costly equipment may require the company to use its earnings for another purposes rather than distributing profits. Another major reasons to suspend dividends by the companies are: * financial trouble , * funding growth , & * to defer preferred dividends. ]

question no: [2] OF THE FOLLOWING, WHICH RATIO WOULD BE THE BEST RATIO TO JUDGE THE FINANCIAL LEVERAGE OF A FIRM ?

answer : Debt to equity ratio

[ Debt to equity ratio is the best way to judge the financial leverage of any firm. It is a financial ratio indicating the relative proportion of shareholder's equity and debt used to finance the company's assets.It is also known as risk, leverage or gearing ratio. Higher the ratio indicates , higher the debt amount of the firm, therefore higher financial leverage. ] [ All other ratios are also helps to know if your business is healthy or not.]

question no: [3] WHAT DOES A FALLING ACCOUNT RECEIVABLE TURNOVER RATIO MEANS ?

answer : the amount of money needed to fund working capital is growing.

[ Lower receivable turnover ratio means your business is not making timely collections. Low receivable turnover is due to poor collection process and bad credit policies. It indicates that company should reassess it's credit policies. Thus, low receivable ratio denotes the amount of money needed to fund working capital is increases , because of the shortage of fund due to the improper collection of receivables]

question no: [4] THE SECURITIES AND EXCHANGE COMMISSION'S MAIN GOAL WITH A PROSPECTUS IS TO?

answer : make sure full disclosure to investors has been done

[ A prospectus is a formal document , required to be filed with the SEC, which provides details about an investment offering to the public. It is a full disclosure document that describes a financial security for potential buyers. Thus the main purpose of prospectus it to make sure the full disclosure of facts to the investors. ]