Question

BlastTel Inc. has a return on invested capital of , whereas, SaneTel Corp. has a return on invested capital of . Your inference from the analysis is that both firms are in a high-growth phase, and their growth will be profitable. Considering your analysis, which of the following statements is true? If a company has negative NOPAT but a positive free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth. If a company has positive NOPAT but a negative free cash flow, then the firm could be in a high-growth phase and making investments in operating capital to support growth.

Answer 1

Answer:

The true statement is Statement (B)

Explanation:

Both firms are in a high growth phase and their growth will be profitable.

NOPAT is the Net Operating Profit-After-Tax. It is the net profit left to run or operate the firm, after tax has been deducted. It is the income available for all investors in the company, including debt holders and shareholders.

If a company has positive NOPAT but negative FCF (free cash flow), then the firm could be in a high growth phase and making investment in OC (operating capital), to support growth.