Chapter3 Analyzing Financing Activities

Chapter3 Analyzing Financing Activities - Chapter 3...

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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 financing—credit and equity—and the accounting underlying reports of these activities. We also consider off-balance-sheet financing, the relevance of book values, and liabilities "at the edge" of equity. Techniques of analysis exploiting our accounting knowledge are described. Instructor's Solutions Manual 3-1
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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 Shareholders’ Equity Capital Stock Retained Earnings Liabilities at the “Edge” of Equity Redeemable Preferred Stock Minority Interest Appendix 3A: Lease Accounting – Lessor Appendix 3B: Computation of Book Value Per Share Financial Statement Analysis, 7th Edition 3-2
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Identify the principal characteristics distinguishing liabilities and equity. Interpret lease disclosures and their implications for analysis. Analyze pension disclosures and their consequences for company valuation. Analyze postretirement disclosures and their consequences for firm valuation and risk. Analyze contingent liability disclosures and risks. Identify off-balance-sheet financing and consequences to risk analysis. Analyze and interpret liabilities at the edge of equity. Interpret capital stocks and identify their distinguishing features. Describe retained earnings and their distribution through dividends.
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This note was uploaded on 02/13/2012 for the course ECON 101 taught by Professor Teerana during the Spring '11 term at Thammasat University.

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Chapter3 Analyzing Financing Activities - Chapter 3...

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