Financial Analysis and Accounting (Stage 3)

Financial accountin accounting g and analysis (Stage 3) Questons: (Equiy fnancing) 1.Wha are some advanages o he corporae orm o an organizaton !.Wha is mean "y a limited liability o a corporaton #.Wha #.Wha righs are a$ached o common sharesWhere are hese righs indicaed %.Wha %.Wha is a "oard o direcors and &hom does i represen're he direcors invoved in he daiy managemen o he enty .*escri"e: a.&o main casses o shares ha can "e issued "y a corporaton+ corporaton+ and and ".he di,eren erms reatng o he saus o a corporaton-s shares. ./n &ha &ays can shares "e 0preerred/n &hich &ays are hey simiar o common shares*i,eren rom common shares 2.Why do corporaes sometmes op or a share spi 3./denty he ma4or componens o he equiy secton o a "aance shee.Why shee.Why are hose componens distnguished 5.6o& can reained earnings "e said o "e reinvened reinvened in a corporaton 17.Wha 17.Wha are he main issues a "oard o direcors considers &hen ma8ing a dividend decaraton decision 11.Even i a corporaton is ma8ing a su"santa ne income each year9&hy year9&hy migh he "oard o direcors decide o no pay any cash dividends 1!.*istnguish among he dae o dividend decaraton9 he record dae9 and he dae o paymen. 1#.Wha 1#.Wha is he di,erence in accountng "e&een cash dividends and share dividends 1%.Epain he di,eren dividend preerences ha may "e a$ached o he preerred shares.Why shares.Why &oud preerred shares have hese preerences over common shares *oes i mean ha purchasing preerred shares is "e$er han purchasing common shares 1.Wha 1.Wha are dividends in arrears're hey a ia"iiy o a corporaton 1.6o& does a share dividend di,er rom a share spi 12.*oes a share dividend change an invesor-s percenage o corporae o&nershipEpain9 using an eampe. 'ns&ers:

1.a./ is a ega enty &ih unimied ie+ is eisence is separae rom is o&ners+ and i has many o he righs and responsa"iites o an individua. "./ has imied ia"iiy+ ia"iiy+ he o&ners are ia"e ia"e ony or he amoun amoun hey inves in he company company.. c.'cquiring capia is is aciiaed aciiaed "y "eing a"e o issue shares(o&nership shares(o&nership unis) unis) &ih di,eren ris8 and and re&ard srucures o many o&ners. d.;orporatons d.;orporatons may pay income aes a raes ha may "e o&er han raes or individuas. !.Limited liability :  ighs o common sharehoders are as oo&s: a.
iii./ssued shares C he oa num"er o auhorized shares ha have "een issued in he name o he sharehoders+issued sharehoders+issued shares may no "e in he hands o he sharehoders(e.g. sharehoders(e.g. reasury shares). iv.Busandi iv.Busanding ng shares C auhorized shares ha have "een issued and are acuay in he hands o sharehoders. v.>eacquired ?haresshares ha have "een reApurchased rom sharehoders9 have no "een canceed9 and no have "een reissued (aso caed reasury shares). .?hares are preerred in ha heir o&ners: a.Feneray assume ess ris8 han common sharehoders. When a corporaton is disoved9 preerred sharehoders have have frs caim on he remaining asses aGer he credios have "een paid+ and ".6ave a prior caim o he earnings o he corporaton.@reerred sharehoders sharehoders mus "e paid specifed dividends "eore any paymens are made o common sharehoders. @reerred sharehoders are simiar o common sharehoders in ha "oh a.B&n share certfcaes9 evidence o corporae o&nership+ ".6ave he ega guaranee ha a shares o he same cass &i "e reaed equay &ih respec o he righs and privieges a$ached o hem+ c.6ave he righs o dividends decared "y he "oard o direcors+ and d.6ave he righ o partcipae in disri"uton o asses on iquidaton o he corporaton. @reerred sharehoders di,er rom rom common sharehoders in ha : a.;ommon sharehoders sharehoders can partcipae in he managemen o he corporaton "y votng a sharehoder-s meetngs ".;ommon sharehoders can appoin audiors+ c.;ommon sharehoders assume more ris8 han preerred sharehoders+6o&ever sharehoders+6o&ever99 common sharehoders have more poenta or receiving su"santa dividends dividends and increases in he vaue o heir shares i he corporaton is successu9 and+ d.;ommon sharehoders sharehoders receive he "aance o asses aGer oher caims have "een satsfedA in case o a "an8rupcy or iquidaton9 here are usuay e& or no oher asses o disri"ue o common sharehoders+preerred sharehoders+preerred sharehoders have prior caims. 2.Bptng or share spi: When he shares o a corporaton are seing a a high price on he soc8 mar8e9 managemen may op or a soc8 spi in order o pu hem more easiy &ihin he reach o more invesors. 3.Ha4or componens o he equiy secton o he "aance shee are share capia (preerred shares and common shares) and reained earnings.
5.>eained earnings represen ne asses ha are earned "y a corporaton over is ie ha have no "een disri"ued as dividends o sharehoders. 's such9 hey can "e used o inves in productve actvites o he "usiness. 17. ?ome o he main consideratons invoving invoving he decaraton o he dividends are: a.Wheher a.Wheher or no here is enough cash9or &heher he dividends can "e paid "y disri"uton o some oher asses+ ".Wheher ".Wheher he poicy o he corporaton precudes dividend paymens+ and c.Wheher c.Wheher here is a ega requiremen ha dividend mus "e decared. 11.' corporaton may decide no o pay cash dividends even hough i has a su"santa ne income "ecause fnancia conditons may ma8e i impractca or impossi"e. a.
1#.Diferences between Cash Dividend and Share Dividend ' cash dividend reduces "oh he asse ;ash and he equiy accoun >eained Earnings. ' share dividend does no a,ec ;ash+ he >eained Earnings accoun is st reduced9 "u he accoun ;ommon ?hares (or @reerred9 i appica"e) is increased. ' share dividend has no e,ec on equiy. 1%.*ividend preerences ha may "e a$ached o preerred shares are: a.@reerred a.@reerred sharehoders are ented o dividends "eore any dividends are disri"ued o common sharehoders+ ".@reerred ".@reerred shares may "e cumuatve+ undecared dividends can accumuae rom one year o he ne+and c.@reerred sharehoders may partcipae &ih common sharehoders in dividend disri"utons "eyond heir usua preerred dividends.

@reerred shares have reurns ha are more predica"e and hus a$rac invesors invesors &ih a o&er oerance or ris8. eained >eained earnings decrease and share capia increases. ' share spi is an acton a8en "y he corporaton o increase he num"er o shares ousanding and redduce he per share mar8e vaue.Io 4ourna enry is required o record a share spi9 and here are no accountng e,ecs. 12.' share dividend increases he num"er o shares hed "y each sharehoder "u he o&nership percenage remains he same./ a 17J share dividend is disri"ued9 each sharehoder hods more shares "u he percenage o o&nership remains he same. @'>< //.(Konds9 and Kond ;haraceristcs). 1.?ecured "onds(Wha are hey) !.Dnsecured "onds are caed L.. (and descri"e hem a "i) #.Wha require regisered "onds %.Wha can you say a"ou seriia "onds .;onvert"e .;onvert"e and redeema"e "onds. .?in8ing und "onds. 'ns&ers: 1.?ecured "onds are de" insrumens "ac8ed "y physica asses o he corporaton.egisered "onds require require he name and adress o he o&ner o "e recorded "y he corporaton or is rusee.
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