Question

Outline the characteristics you would expect a company to have if it had: A very low...

  1. Outline the characteristics you would expect a company to have if it had:
  1. A very low debt-equity ratio
  2. A very high debt-equity ratio
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a) Very low debt equity ratio

This type of company would be seasonal where there is a high level of uncertainity. In good times the company will perform very well but in the bad times the performance will be very bad. Hence due to seasonality if the company has high amount of debt there is a risk to go bankrupt.

A company may also be at early stage of life cycle where the company is just starting to grow. At early stage of investment it is important to have a very low amount of debt.

b) High Debt equity ratio

Such company might be a mature stage. They have established their position in the market with good market share. They might be involved in non seasonal business where there is consistent performance and certainity regarding the earnings. Hence such firms benefit from high financial leverage and are able to take higher level of risk.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which of the following types of firms do you expect to have particularly high or low...
Which of the following types of firms do you expect to have particularly high or low asset turnover? Explain why. a. Supermarket b. Pharmaceutical company c. Jewellery retailer d. Software company
As you know, interest rates are very low these days. Furthermore, for our firm, the cost...
As you know, interest rates are very low these days. Furthermore, for our firm, the cost of debt is much lower than the cost of equity at the moment. Does this mean that if our firm increases financial leverage (measured by “debt-equity ratio”) via capital restructuring, our profitability (measured by “Return on Equity”) will increase, and therefore our firm value will go up?
If a spring has a high stiffness, you would expect the compliance to be: high or...
If a spring has a high stiffness, you would expect the compliance to be: high or low? A. High B. Low
Map out, in outline form, the steps that you would expect to be taken to migrate...
Map out, in outline form, the steps that you would expect to be taken to migrate the airline flight bookings sub-system to the cloud. The steps should make allowance for business continuity planning, as well as offer provisions for future business growth, and disaster recovery contingency planning.
A company had $17 of sales per share for the year that just ended. You expect...
A company had $17 of sales per share for the year that just ended. You expect the company to grow their sales at 5.75 percent for the next five years. After that, you expect the company to grow 3.25 percent in perpetuity. The company has a 15 percent ROE and you expect that to continue forever. The company's net margins are 6 percent and the cost of equity is 11 percent. Use the free cash flow to equity model to...
A company had $22 of sales per share for the year that just ended. You expect...
A company had $22 of sales per share for the year that just ended. You expect the company to grow their sales at 6 percent for the next five years. After that, you expect the company to grow 3.5 percent in perpetuity. The company has a 14 percent ROE and you expect that to continue forever. The company's net margins are 6 percent and the cost of equity is 10 percent. Use the free cash flow to equity model to...
A company had $22 of sales per share for the year that just ended. You expect...
A company had $22 of sales per share for the year that just ended. You expect the company to grow their sales at 7 percent for the next five years. After that, you expect the company to grow 4.5 percent in perpetuity. The company has a 12 percent ROE and you expect that to continue forever. The company's net margins are 5 percent and the cost of equity is 11 percent. Use the free cash flow to equity model to...
A company had $20 of sales per share for the year that just ended. You expect...
A company had $20 of sales per share for the year that just ended. You expect the company to grow their sales at 6.25 percent for the next five years. After that, you expect the company to grow 3.75 percent in perpetuity. The company has a 15 percent ROE and you expect that to continue forever. The company's net margins are 5 percent and the cost of equity is 10 percent. Use the free cash flow to equity model to...
A profitable high-tech company would generally have: a. high price-to-book ratio and high price-to-earnings ratio. b....
A profitable high-tech company would generally have: a. high price-to-book ratio and high price-to-earnings ratio. b. high price-to-book ratio and low price-to-earnings ratio. c. low price-to-book ratio and high price-to-earnings ratio. d. low price-to-book ratio and low price-to-earnings ratio.
Let's say that you were starting a company that manufactures dining room furniture. You expect to...
Let's say that you were starting a company that manufactures dining room furniture. You expect to position the company as a low cost, high volume company. Which inventory management system would you prefer (MRP or JIT)? why?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT