Chapter_10 - Liabilities and Long-Term Debt Chapters 10...

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Liabilities and Long-Term Debt Chapters 10 & 11
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Capital Structure Equity Financing Debt Financing Financial Leverage Ratio = Average Total Assets _ Average Shareholders’ Equity Ratio to get a sense of amount of capital structure 1 = all assets are financed for equity 0 debt 1+ means greater use of debt = greater leverage
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Equity vs. Debt Financing Equity Flexibility of cash flow (B) not required to pay dividends Owners’ interest diluted when issue (W) Costs involved to issue shares (W) Value of shares could decline (W) Debt Financing Greater return for the owners (B) Pay interest (W) Assets required as collateral (W) Interest is tax deductable (B) reduces cost for the debt
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Current Liabilities Working Capital Current assets – current liabilities, absolute measure not ratio Sensitive to the size of the firm hard to compare with other companies Current Ratio = Current Assets Current Liabilities Common ratio, 1> means more assets than liabilities
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This note was uploaded on 04/02/2010 for the course AFM AFM 101 taught by Professor Kennedy during the Fall '09 term at Waterloo.

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Chapter_10 - Liabilities and Long-Term Debt Chapters 10...

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