Question

5. 

Which of the following companies has the lowest degree of leverage?

 20% Debt, 80% Equity

 50% Debt, 50% Equity

 90% Debt, 10% Equity

 30% Debt, 70% Equity

6.

 Which of the following statements is correct?

 Financial buyers are institutions that provide capital and are not operators.

 Strategic buyers are institutions that provide capital and are not operators.

 Financial buyers are operating partners that try to create synergies.

 Strategic buyers are asset managers that are trying to time the purchase or sale of a business.

Answer 1

Answer:

Question 5:

Which of the following companies has the lowest degree of leverage?

Ans: 20% debt and 80% Equity

Explanation: A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans) or assesses the ability of a company to meet its financial obligations. The leverage ratio category is important because companies rely on a mixture of equity and debt to finance their operations, and knowing the amount of debt held by a company is useful in evaluating whether it can pay its debts off as they come due.

Question 6:

Which of the following statements is correct?

Ans: Financial buyers are institutions that provide capital and are not operators.

Explanation: If you decide to sell your business to an outside acquirer, you’re going to have to decide between a financial and a strategic buyer. A financial buyer is acquiring your future profit stream, so they will evaluate your business based on how much profit it is likely to make in the future and how reliable that profit stream is likely to be. The more profit you can convince them your company will produce, the more they will pay for your business. Financial buyers are usually investors and not operators, they want you and your team to stick around, so they rarely buy all of a business. Instead, they buy a chunk and ask you to hold on to a tranche of equity to keep you committed.

A strategic buyer is a different cat. Usually a larger company in your industry, they are evaluating your business based on what it is worth in their hands. They will try and estimate how much of their product or service they can sell if they added you into the mix. Because of their size, this can often lead to buyers who are willing and able to pay much more for your business.

Thank You.