1. What are free cash flows?
2. Explain the difference between a company’s operating cash flow under GAAP and its free cash flow.
3. Briefly describe the key features of the free cash flow approach to valuation.
E7-5 Why P/E ratios vary (LO 7-4)
The price/earnings ratios of four companies from the same industry are:
Company P/E Ratio
Ingles Markets 7.9
Kroger 6.6
Sprouts Farmers Market 18.3
Weis Markets 17.4
Source: Based on closing stock prices on March 17, 2019, and trailing-twelve-months earnings per share, both from Yahoo Finance.
Required:
What factors might explain the difference in the P/E ratios of these companies?
E7-7 Earnings quality (LO 7-5)
Required:
1. Define the term quality of earnings.
2. List the techniques that management can use to improve a company’s reported earnings performance in the short run.
Give examples of low-quality earnings com
