Project IR Butler 2019-20 - Get one IR Question EverydayQuestion # 179, Date : 29-Mar-2020
This post is a part of Project IR Butler 2019-20.
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The graph here is a scatter plot of 7 points, each representing a company's return on capital and EV/Capital ratio in the fictitious Widgets industry.
Return on Capital is defined as EBIT (Earnings Before Interest and Taxes) divided by Capital (or EBIT/Capital).
The slope provided is y-axis over x-axis; here the slope is (EV/capital) / (EBIT/captial) = EV/EBIT. An EV/EBIT slope of 8.0x is drawn as a dotted line.
Use the drop-down menus to fill in the blanks in each of the following statements based on the information given by the graph.1) Among the companies listed, if a company had a ROC % no more than 40%, it had EV/Capital ratios of no more than__________.A. 1.0x
B. 2.0x
C. 3.0x
2) Referencing the 8.0x EV/EBIT slope, the appropriate EV/EBIT multiple for the Widgets industry is most closest to____________. A. 6.8x
B. 8.0x
C. 9.2x
_________________