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Stocks 305: Quantifying Competitive Advantages

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1.
When using net profit margin to look at the relative efficiency of companies, it is best to use it _______.
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Within the same industry. It is best to use both net profit margin and turnover in isolation only if looking at very similar companies.
2.
What does a company's turnover ratio measure?
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How efficiently the company uses its assets to generate sales.
3.
You've probably discovered a good cash machine if a company's free cash flow is more than _______ of sales.
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5%. Five percent is generally accepted, though you should investigate the company further.
4.
Which of the following measures will not affect return on assets (ROA)?
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Asset/equity ratio. The asset/equity ratio will affect return on equity (ROE), not ROA.
5.
Which expenses are not subtracted from sales when calculating NOPAT (net operating profit, after taxes)?
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Interest. Interest expenses are not subtracted from operating profit when calculating NOPAT. Taxes (the "AT" in NOPAT) obviously are, while COGS are subtracted from sales to get to operating profit.