BUSI 2160U Chapter Notes - Chapter 12: Financial Statement Analysis, Financial Statement, Earnings Management
Document Summary
Chapter 12 analyzing and interpreting financial statements. People analyze financial statements to help them make decisions. Creditors concerns to ability to pay, value of security and compliance of covenants (contract agreement) Covenants are restrictions that impose limits on the actions of borrowers. Covenants may limit or restrict payment of dividends, additional borrowing, some investments, and sale of certain assets. They may also require that the borrower maintain financial ratios, for example the current ratio or the debt-to-equity ratio, above or below specified levels. The value of the entity or its shares is extremely important information for people considering investing in or purchasing a private company. Investors and prospective investors in private and public companies might want to predict future cash flows and earnings to assess whether the company can pay dividends or if it will be able to meet upcoming liabilities.
