(TRUE or FALSE). Two metrics that are used to measure a company's financial performance are net income and cash flow. Accountants emphasize net income as calculated in accordance with Generally Accepted Accounting Principles (GAAP). Financial analysts generally put at least as much weight on Free Cash Flow as they do on accounting Net Income. 1. (TRUE or FALSE). Free cash flow (FCF) is calculated as after-tax operating income plus depreciation less the sum of capital expenditures and changes in net operating working capital. 2. 3. Which of the following statements is CORRECT? Typically, a firm's Dividends per Share (DPS) should exceed its Earnings per Share (EPS). Typically, a firm's net income should exceed its Earnings Before Interest & Income Taxes (EBIT or pre-tax Operating Income). If a firm is more profitable than average, we would normally expect to see its stock price exceed its book value per share. If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation The more depreciation a firm has in a given year, the higher its EPS, other things held constant. a. b. C. d. e. 4. Which of the following statements is CORRECT? Actions that increase reported net income will always increase cash flow. One way to increase Economic Value Added (EVA) is to generate the same level of operating income but with less total invested capital. One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free One way to increase EVA is to achieve the same level of operating income but with more total invested capital obtained at a higher cost of capital If a firm reports positive net income, its EVA must also be positive b. c. d