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9. Evaluating free cash flows and return on invested capital You’re an industry analyst for the...
9. Evaluating free cash flows and return on invested capital
You’re an industry analyst for the telecomm sector, and have been analyzing financial reports from two companies: Talker Corp. and MobileTalk Inc. The corporate tax rate for both firms is 35%. Your associate analyst has calculated and compiled, in the following table, a list of important figures you’ll probably need for the analysis:
Data Collected
|
Talker Corp. |
MobileTalk Inc. |
|
|---|---|---|
| EBIT | $176,300 | $64,500 |
| Depreciation | $58,179 | $21,285 |
| Total operating capital | $774,000 | $402,480 |
| Net investment in operating capital | $387,000 | $167,700 |
| WACC | 11.85% | 11.88% |
In your analysis, you want to look for several characteristics—one of them being the return on invested capital (ROIC). Using the information available, complete the following statements:
| • | Talker Corp. has a free cash flow than MobileTalk Inc. does. |
| • | The net operating profit after tax (NOPAT) for Talker Corp. is , whereas the NOPAT for MobileTalk Inc. is . |
| • | Talker Corp. has a return on invested capital of , whereas, MobileTalk Inc. has a return on invested capital of . |
Your inference from the analysis is that both firms are in a high-growth phase, and their growth will be profitable. Considering your analysis, which of the following statements is true?
If a company has negative NOPAT but a positive free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth.
If a company has positive NOPAT but a negative free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth.
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jeff jeffy answered 1 year agoRelated Solutions
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10. Evaluating free cash flows and return on invested
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Your associate analyst has calculated and compiled, in the
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Data Collected
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Data Collected
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EBIT
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You’re an industry analyst for the telecomm sector, and have been analyzing financial reports from two...
You’re an industry analyst for the telecomm sector, and have
been analyzing financial reports from two companies: BlastTel Inc.
and SaneTel Corp. The corporate tax rate for both firms is 35%.
Your associate analyst has calculated and compiled, in the
following table, a list of important figures you’ll probably need
for the analysis:
Data Collected
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SaneTel Corp.
EBIT
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$218,400
WACC
11.85%
11.88%...
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