Which of the following companies is most likely to owe BHP Billiton money as part of BHP Billiton’s accounts receivable?

ASSIGNMENT

Increased leverage allows companies to control more assets and increase their ROE. What’s bad about leverage?

It reduces productivity, which can decrease overall ROE.

Leverage-based profits are not cash-based and are ignored by finance.

Leverage multiplies losses, too, as it increases a company’s risk

There is nothing bad about leverage—using other people’s money is a good way to increase the value of the company.

What types of companies are more likely to have high leverage?

Companies with high growth opportunities in new industries

Companies in stable, predictable industries with reliable cash flows

Technology companies

Companies with low profitability

In 2009, Warren Buffett invested $3 billion in Dow Chemical, via an issuance of preferred stock. Which of the following is not an advantage of preferred stock to the owner of the preferred stock?

In the case of bankruptcy, preferred stockholders get paid before common stockholders.

Even when common stockholders get no dividends, preferred stockholders may get dividends.

Preferred stock is associated with ownership in the company, unlike debt.

Preferred stock dividends must be in even-numbered percentages (2 percent, 4 percent, etc.).

Which of the following is least likely to be listed as an asset on a balance sheet?

Gilead Sciences Inc.’s patent for the highly profit-able hepatitis C treatment it developed in-house

Google’s corporate headquarters

Payments owed to Ford Motor Company by dealer- ships for the purchase of cars

The $42 billion in Facebook’s bank accounts at year-end 2017

Which of the following companies is most likely to have the highest inventory turnover?

Subway, a fast-food restaurant company

Books-A-Million, a bookstore chain

Whole Foods, a grocery store

British Airways, an airline

Which ratio is a distinguishing feature of retail companies?

High ROE

Low receivables collection period

High inventory turnover

High total debt/total assets

BHP Billiton is one of the world’s largest mining companies, and accounts receivable make up 21 percent of its total assets (in 2016). Which of the following companies is most likely to owe BHP Billiton money as part of BHP Billiton’s accounts receivable?

Bank of America, a global bank

Mining Recruitment Agency, a recruiter for em- ployees specialized in mining Sysco, a food distributor United States Steel Corporation, a steel manufacturer

Which of the following constituencies care most about a company’s current ratio?

Its stockholders

Its suppliers

Its competitors

Its customers

True or false: a high ROE is always a good thing.

True

False

Home Depot, a home improvement supply store, issued $2 billion in debt in late 2016. What is the main difference between debt and other liabilities, like accounts payable?