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Unformatted text preview: ing additional equity in the
companies, a sound investor would need to understand the steps taken by management to correct the
profitability problems. To assure that “good money was not chasing bad money”, a sound investor would
meet with management, discuss the causes of past problems, and come to a firm understanding of and
agreement with the remediation steps taken to restore the companies to profitability. Without sustained
profits, no business can remain viable. A sound investor would need to believe that the companies will
soon be in a position to show that revenues exceed operating expenses. ID12–11
a. A 4:1 stock split means that the corporation will replace every share of outstanding stock with 4 shares of
the stock. Because the corporation is simply splitting the ownership shares into smaller pieces, declaring
or issuing a stock split does not affect the dollar amounts Walt Disney would report in its financial
statements. However, a 4:1 stock split would result in (1) the number of shares of common stock Disney
had outstanding to increase by a factor of four and (2) the par value per share to drop to 25% of its...
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