Ch_03 - Chapter 03 - Analyzing Financing Activities 3-1...

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Unformatted text preview: Chapter 03 - Analyzing Financing Activities 3-1 Chapter 3 Analyzing Financing Activities REVIEW Business activities are financed through either liabilities or equity. Liabilities are obligations requiring payment of money, rendering of future services, or dispensing of specific assets. They are claims against a company's present and future assets and resources. Such claims are usually senior to holders of equity securities. Liabilities include current obligations, long-term debt, capital leases, and deferred credits. This chapter also considers securities straddling the line separating liabilities from equity. Equity refers to claims of owners to the net assets of a company. While claims of owners are junior to creditors, they are residual claims to all assets once claims of creditors are satisfied. Equity investors are exposed to the maximum risk associated with a business, but are entitled to all residual rewards associated with it. Our analysis must recognize the claims of both creditors and equity investors, and their relationship, when analyzing financing activities. This chapter describes business financing and how this is reported to external users. We describe two major sources of financingcredit and equityand the accounting underlying reports of these activities. We also consider off-balance-sheet financing, including Special Purpose Entities (SPEs), the relevance of book values, and liabilities "at the edge" of equity. Techniques of analysis exploiting our accounting knowledge are described. Chapter 03 - Analyzing Financing Activities 3-2 OUTLINE Liabilities Current Liabilities Noncurrent Liabilities Analyzing Liabilities Leases Lease Accounting and Reporting Lessee Analyzing Leases Postretirement benefits Pension Accounting Other Postretirement Benefits (OPEBs) Analyzing Postretirement Benefits Contingencies and Commitments Contingencies Commitments Off-Balance-Sheet Financing Through-put and Take-or-pay agreements Product financing arrangements Special Purpose Entities (SPEs) Shareholders Equity Capital Stock Retained Earnings Computation of Book Value Per Share Liabilities at the Edge of Equity Redeemable Preferred Stock Minority Interest Appendix 3A: Lease Accounting Lessor Appendix 3B: Accounting Specifics for Postretirement Benefits Chapter 03 - Analyzing Financing Activities 3-3 ANALYSIS OBJECTIVES Identify and assess the principal characteristics of liabilities and equity. Analyze and interpret lease disclosures and explain their implications and the adjustments to financial statements. Analyze postretirement disclosures and assess their consequences for firm valuation and risk....
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Ch_03 - Chapter 03 - Analyzing Financing Activities 3-1...

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