A/. You're a stock analyst trying to forecast a firm's operating free cash flow (OFCF, which excludes interest tax shields) based on figures from your forecast cash flow statement.

Assume that the:

-Debt liabilities are priced at par, so interest expense (IntExp) equals actual interest payments. This means that interest expense is a cash flow, so interest expense is not added back to net income in the 'operating activities' section of the cashflow statement;

-'Net cash provided by investing activities' is equal to negative one multiplied by the firm's positive capital expenditure.

-'Net cash provided by financing activities' is equal to negative one multiplied by the firm's dividend payments.

-Corporate tax rate is 30%.

OFCF equals 'Net cash provided by operating activities' plus:

a. 'Net cash provided by investing activities'.

b. 'Net cash provided by investing activities' plus IntExp*(1-tc).

c. 'Net cash provided by investing activities' plus IntExp.

d. 'Net cash provided by financing activities' plus IntExp*(1-tc).

e. 'Net cash provided by financing activities' plus IntExp.

B/. On 1 September 2022, AFR journalist Sue Mitchell wrote:

In the six months ending June, sales and earnings at omni-channel retailers with physical and online stores rebounded, while sales growth at pure-play e-commerce retailers slowed sharply or, in the case of Kogan, went backwards, decimating profits as operating leverage unwound.

Hindsight is a beautiful thing and [it] turns out we were wrong, Kogan told investors after the company delivered a bottom-line loss of $35.5 million and a 69 per cent drop in underlying earnings to $18.9 million. Sales revenue fell 8 per cent, despite the acquisition of New Zealand e-tailer Mighty Ape.

Based on the data at the time, we predicted the trend would not stop or slow, he said. As the pandemic settled, e-commerce didnt grow as expected, we were left with too much inventory and warehousing costs.

Pure-plays are now prioritising profits over sales by culling staff and cutting back on investment moves that could affect customer acquisition and sales.

Kogan, for example, is cutting marketing spend, reducing headcount, clearing excess and underperforming inventory to reduce warehouse costs, and raising the price of its loyalty program, Kogan First.

Kogan hopes to return to profitable growth this year, but the damage for shareholders has been done. The share price has plunged 86 per cent since pandemic-fuelled highs, dropping to $3.40 this week from a peak of $24.76 in September 2020.

Investors are now asking whether pulling back on investment will reduce addressable markets and questioning whether some pure-play online retailers will ever achieve scale.

Multiples for pure-plays have fallen to about 0.7 times revenue after reaching more than two times revenue at the height of the pandemic.

Which of the following statements about this quote is NOT correct? The pure-play online retailers:

a. Can 'achieve scale' by increasing revenue faster than costs to achieve profitability.

b. 'Multiple to revenue' ratios of 0.7, referred to in the last sentence, are likely to be equity- or EV-to-revenue ratios.

c. Typically have high proportions of debt funding, so interest expense is a major cost compared to advertising.

d. Are seeking to improve profit margins by cutting costs.