Question

1. a financial analyst, observes that a firm has low CFO/Average total assets ratio compared to its similar peers. which of the following he most likely conclude?

a. the firm has higher level of waste and has redundant assets

b. the firm has a lower ability of making use of the capital to generate cash flows

c. teh firm has a lower ability of collectiong receivable by making use of the capital

2. a financial analyst, observes that a firm has a low CFO/ average shareholder equity ratio compare to its similar peers, which of the following he most likely cinclude?

a. each share the shareholder hold will more likely receive lower dovidend distribution

b.each share teh shareholder hold has a lower cash component in it and a higher accrued profit level in it

c. each share the shareholder hold will receive lower CFO distribution

Answer 1

1)

When CFO/ Total Assets is low, it means that the firm generates low cash flow for every dollar of asset deployed. This is an efficiency ratio.

Answer is b. the firm has a lower ability of making use of the capital to generate cash flows

2)

If a firm has lower CFO/ Average shareholder equity, then it means that it is returning less cash from operations for every dollar of equity invested.

Answer is c. each share the shareholder hold will receive lower CFO distribution