Question

Do an evaluation on the below graph on the basis of a) seasonality b) long-term trend, and structural breaks. X-axis shows the years. (Blue line GM and Red line Dell) Cash & Equivalents Turnover of Dell and GM 11 10 9 8 7 6 5 4 09 10 11 12 13 14 15 16 17 18 19 20 CET_GMSA CET_DELSA

Answer 1

Cash and cash-equivalents turnover ratio = Revenues for the period / Average cash and cash-equivalents at the end of the same period

The upward trend indicates a higher ratio and the lower trend indicates a lower ratio.

X-axis: Year

Y-axis: Ratio

Based on the above formula the respective evaluation is as below:

a.

GM has seasonal effect in turnover, since its curve varies in each year almost at the same pace.

DEL doesn’t have seasonal effect in turnover, since its curve varies irregularly.

b.

GM has the decreasing long-run trend of turnover, since after the year 18 the curve has fallen a large.

DEL has the increasing long-run trend of turnover, since the curve is highly upward after the year 18.

c.

Structural breaks appear after the year 18 – the new technology appears in the market that out-dated the existing system. This may or may not favour the existing companies.

Structural break doesn’t favour GM, since after year 18 the curve falls – this means the company is running with the old technology.

It favours DEL, since the curve is upward trend after the year 18 – this indicates that the company is adopted the new technology.