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Unformatted text preview: ©Cambridge Business Publishers, 2013 Initial Questions about the Balance Sheet ■Many investment­type companies such as Berkshire Hathaway and high­tech companies such as Cisco Systems carry high levels of cash. Why is that? Is there a cost to holding too much cash? Is it costly to carry too little cash? ■The relative proportion of short­term and long­term assets is largely dictated by companies’ business models. Why is this the case? Why is the composition of assets on balance sheets for companies in the same industry similar? By what degree can a company’s asset composition safely deviate from industry norms? ©Cambridge Business Publishers, 2013 Initial Questions about the Balance Sheet continued ■What are the trade­offs in financing a company by owner versus nonowner financing? If nonowner financing is less costly, why don’t we see companies financed entirely with borrowed money? ■How do shareholders influence the strategic direction of a company? How can long­term creditors influence strategic direction? ■Most assets and liabilities are reported on the balance sheet at their acquisition price, called historical cost. Would reporting assets and liabilities at fair values be more informative? What problems might fair­value reporting cause? ©Cambrid...
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