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Accounting reports provide a variety of information for evaluating a company. For each accounting number in the following list, write the letter from the description in the right-hand column that indicates the type of information provided by the number.

Description

(a). Ability to create value for stockholders from operating activities

(b). Measures the effectiveness of a company in using its investment in fixed assets to create sales

(c). Ability to generate sales from total investment

(d). Ability to generate profit from sales

(e). Use of debt to increase return to stockholders

(f). The ratio of operating income to interest expense

(g). Direction and amount of change in future return on equity

(h). Potential for higher return

(i). The ratio of accounts receivable to average daily sales

(j). Reinvestment of earnings to increase value of company for stockholders

(k). Reinvestment of operating cash to increase value of company for stockholders

(l). Growth potential through innovation

(m). Ability to create value from total investment

(n). Source of cash for new investment and payments to stockholders

(o). Ratio of inventory to average daily cost of goods sold

(p). Potential for additional sales from increased investment

Accounting Information

__________ Asset turnover

__________ Financial leverage

__________ Growth in assets

__________ Growth in equity

__________ Growth in sales

__________ Growth in return on equity

__________ Investing cash flow

__________ Operating cash flow

__________ Profit margin

__________ Research and development

__________ Return on assets

__________ Return on equity

__________ Fixed asset turnover

__________ Times interest earned

__________ Day’s sales in inventory

__________ Average accounts receivable collection period

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Financial ratio analysis is one of the best techniques for identifying and evaluating internal strengths and weaknesses. Potential investors and current shareholders look closely at firms’ financial ratios, making detailed comparisons to industry averages and to previous periods of time. Financial ratio analysis provides vital information for developing an IFE Matrix. Instructions Step 1 On a separate sheet of paper, write down numbers 1 to 20. Referring to Nestlé’s income statement and balance sheet, calculate 20 financial ratios for 2015. Step 2 In a second column, indicate whether you consider each ratio to be a strength, weakness, or neutral factor for Nestlé.

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International businesses use a variety of global entry methods to compete in another country outside their home country. These include (1) Export/Import Business (2) Licensing (3) Franchising (4) Strategic Alliances (5) Joint Ventures (6) Foreign Acquisitions (7) Wholly – Owned Foreign Subsidiaries. See page 194-196 in eText.

Part 1: (a) Select/describe an international business that has entered/competed in another country outside their home country (be specific) and describe their entry strategy into that country

Part 2: (a) Identify/discuss at least 2 advantages and 2 disadvantages of their chosen entry strategy (b) Comment on whether the chosen entry strategy is appropriate for the company in that host country and why

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MyBusinessCom is inquiring whether to extend an $80,000 credit to a potential new customer. Very often, the following categories are used for the credit-worthiness of a credit seeker: poor risk, average risk, and good risk. Based on historical data, 25 percent of credit seekers similar to the new potential customer are poor risks, 50 percent are average risks, and the remaining are good risks. If credit is granted, the expected profit for poor risks is -$10,000, for average risks $15,000, and good risks $25,000. The company may consult a credit-rating organization for a fee of $7,000 per case evaluated.

(a) (4 marks) Develop a decision analysis formulation of this problem by identifying the decision alternatives, the states of nature, and the pay-off table when the credit-rating organization is not used. (b) (5 marks) Find the EVPI. (c) (2 marks) Does your answer in (b) indicate that consideration should be given to using the credit-rating organization? Justify.

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