Cash Flow Analysis

Jun 11th, 2016
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Analyze the case study, "Frank Smith Plumbing." Analyze the "Frank Smith Plumbing's Financial Statement" spreadsheet. Compare the cost of the truck to the cash flow records Compile your calculations in a Microsoft® Excel® document Develop a 1,050-word analysis and include the following: Explain why limited leverage is good for business.Show the profitability of the project so that Stephanie can convince her father to purchase the truck by borrowing money. Explain how Stephanie should convince her mother that it is inappropriate to call the bank manager and his wife for assistance in getting the loan approval? Analyze whether the investment in the truck is profitable. Explain whether it is more beneficial for Frank to close his business. Explain what you would do in this same situation. Format your assignment consistent with APA guidelines. Click the Assignment Files tab to submit your assignments.

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Cash Flow AnalysisFIN/370Christine GordonApr 11, 2016Cash Flow Analysis2Leverage ratio compares a company's debt to the assets. Leverage ratio helps acompany measure its ability to meet its future obligations given the current debt financed bya corporation. Too much debt increase companies the leverage ratio while fewer debts reducethe ratio. A higher leverage ratio may result in increased inability to meet daily expenditureand may lead a company to bankruptcy. Because of the above reason a limited leverage ratioadvised. A limited leverage ratio means a company can seek loans or debt to finance itsactivities; thus, a lower or limited leverage ratio recommended.Leverage ratio =total debt/total equity.For Stephanie to correctly advise her father she needs to calculate the leverage and theprofitability index of the business. If the company indicates a low leverage ratio and aprofitability index of above 1, then it is advisable to take a loan to enable smooth operation ofthe business.Profitability index is a ratio that tries to identify the relationship that exists betweenthe cost of an investment and the benefits of a proposed project.Profitability index = pres

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