RSM220H1 Chapter Notes - Chapter 5: Treasury Stock, Accrual, Accounting Software
Document Summary
Provides info about a company"s liquidity and solvency in order to assess the risk of investing in company. Provides detail about the financial structure (debt or equity) Concern that insiders might manipulate info to make earnings look better or worse than they are. Analyze cash flow to assess earnings quality. Creditors look at bs to assess a company"s liquidity and its ability to service debt. Companies that use a higher proportion of debt are typically at higher risk and require higher cash flow from operations to ensure that they are able to make interest and principal payments as they come due. Useful for analyzing a company"s liquidity, solvency, and financial flexibility and profitability (not main focus) Shareholders assess liquidity to evaluate the possibility of future cash dividends or the buyback of shares: the greater the liquidity, the lower of the risk of enterprise or business failure.
