Consider a small business that started in 2010. The business started with $50 cash provided...
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Consider a small business that started in 2010. The business started with $50 cash provided as an equity investmentby its owner. This is a very simple business. They buy and sell everything on a cash basis, so no AP, AR. And all net sales (sales nets of costs) becomes cash. Now imagine a similar but different business, Assumptions are the same. However in order to sustain the growth rate, the company must buy $400 in equipment every year to sustain growth. It finances this investment in equipment by getting a bank loan. So it owes $400 in year one, 800 in year two, etc. For now assume no itnerest. Dividend is zero, depreication is zero. What is the ROE, Profitiability, Turn and leverage of the company. How do you interpret this?
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