GB550- Unit 2 Discussion. Kaplan University.GB550- Unit 2 Discussion
Discussion: Cash Flow and Financial Ratios
Introduction: Sometimes you have to
... [Show More] look beyond what is presented to question what is reported or provided in an opinion. Numbers can be misleading and you should learn to question assumptions regarding the numbers presented. This will in turn provide you with greater insight into the realities of the situation.
Topic 1: Case Study
Please read the Harvard Case Study: “eBay Inc.: Internet Success or Fairy Tale?” by David F. Hawkins and Jacob Cohen. This case study can be found in the Harvard Case Study website. This link is in your Syllabus.
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● Please answer the following questions about the case study:
1. Use the 2002 Financial Statement data to replicate the Meyer's report calculations that illustrate the following conclusion based on the 2001 data reached in the report: eBay has never been profitable. Why? Why not?
The standard construct of free cash flow takes cash from operations and deducts capital expenditures. Management is presumed to be at liberty to apply this free cash to a variety of financing activities, such as paying dividends, repaying debt, making acquisitions or repurchasing stock.(Meyer & Fassler, 2004) It is not uncommon for an organization forego paying dividends and placing focus on growth. Funds may be diverted to R&D or acquisitions. eBay’s financial reports indicate consecutive years of increased sales revenue. In that respect eBay has been profitable. When discussing unfettered cash availability eBay can be view as being less profitable. eBay issued a great deal of stock in compensation packages to their employees. The cash being generate is as yet totally inadequate to buy back enough stock to compensate shareholders for their loss of ownership due to the amount of stock issued to employees. (Hawkins & Cohen, 2004) Think of this concept in terms of a Ponzi scheme where all of the shareholders demand payment at the same time. I admit this is a far stretch of the imagination, but in such a scenario there is no way eBay could adequately compensate the shareholders and have cash flow remaining. [Show Less]