Question

Please use the following information to answer the next question. For JJ Incorporated: Cash Flows from...

Please use the following information to answer the next question.

For JJ Incorporated:

Cash Flows from Assets -------------------------------------------------------------- 100 dollars
EBIT (from 1999 INCOME STATEMENT) ----------------------------------------0 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) -------------------- 0 dollars
Taxes (from 1999 INCOME STATEMENT) ------------------------------------------- 0
Net Fixed Assets from BALANCE SHEET dated December 31, 1998------- 1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999------- 1300 dollars
Additions to (Changes in) NWC for 1999 ------------------------------------------- 0 dollars

For CC Incorporated:

Cash Flows from Assets --------------------------------------------------------------- 0 dollars
EBIT (from 1999 INCOME STATEMENT) -------------------------------------- 500 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) -------------------100 dollars
Taxes (from 1999 INCOME STATEMENT) ---------------------------------------- 100
Net Fixed Assets from BALANCE SHEET dated December 31, 1998-------- 1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999---------1800 dollars
Additions to (Changes in) NWC for 1999 --------------------------------------------- 0 dollars

For JO Incorporated:

Cash Flows from Assets --------------------------------------------------------------- 100 dollars
EBIT (from 1999 INCOME STATEMENT) ------------------------------------------ 0 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) -------------------- 100 dollars
Taxes (from 1999 INCOME STATEMENT) --------------------------------------------- 0
Net Fixed Assets from BALANCE SHEET dated December 31, 1998--------- 1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999----------1300 dollars
Additions to (Changes in) NWC for 1999 ---------------------------------------------- 0 dollars


*Based only on the numbers provided, which Company is doing the BEST?

*In other words, if you were an individual investor, in which Company would you invest?

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Homework Answers

Answer #1

* Based only on the numbers provided above , CC Incorporated is doing the best as it is having the highest EBIT and also the strongest financial position in term of net assets as shown by the balance sheet.

So I would go with this company . But also this is not the only criteria for selection of a company to invest. As we can also see the other two companies are having positive cash flow from assets while it is 0 for CC. Also we are not aware of the fixed financial charges . The total investment made by the company so that we can calculate the ROI, the contribution on sales .

The profit figure is not the only criteria. A lot of other things have to be considered for the decision.

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