L.C. Gupta's sickness prediction model primarily focused on which of the following?

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UGC NET (Management) Official Paper-II (Held On: 12 Mar, 2023 Shift 2)
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  1. Earnings Before Interest and Tax
  2. Sales and Working capital levels
  3. EBIT and operating cash flows
  4. Market value of equity and debt

Answer (Detailed Solution Below)

Option 3 : EBIT and operating cash flows
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UGC NET Paper 1: Held on 21st August 2024 Shift 1
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The correct answer is EBIT and operating cash flows.

Key Points EBIT:

  • EBIT is a measure of a company's profitability and is calculated by subtracting operating expenses, such as cost of goods sold, operating expenses, and depreciation, from its revenues.
  • EBIT represents the company's earnings before deducting interest and taxes. It helps assess a company's ability to generate operating profits from its core business activities.
  • EBIT is often used as an indicator of operational efficiency and profitability without considering the impact of interest expenses and tax obligations.

Operating Cash Flows:

  • Operating cash flows, on the other hand, represent the cash generated or used by a company's operating activities.
  • It provides insight into the actual cash flow generated from the company's core business operations, excluding financing and investing activities.
  • Operating cash flows consider the cash inflows from customers, cash outflows to suppliers and employees, and other operating expenses.
  • It reflects the company's ability to generate cash from its day-to-day operations and is an important metric for evaluating the company's cash flow management and financial health.
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