Chapter 13Chapter 13

Planning Equity Financing

Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Business is organized to achieve certain objectivesBusiness is organized to achieve certain objectives

Business StrategyBusiness Strategy

Companies acquire funds from three sourcesCompanies acquire funds from three sources

Two financing categoriesTwo financing categories

• .

13-6

What is the Risk of Debt Financing?What is the Risk of Debt Financing?

Debt-to-Equity RatioDebt-to-Equity Ratio

Times Interest Earned Ratio-earnings before interest and taxes divided by interest expenseTimes Interest Earned Ratio-earnings before interest and taxes divided by interest expense

13-9

What is the Reward of Debt Financing?What is the Reward of Debt Financing?

Return on Owner’s Equity RatioReturn on Owner’s Equity Ratio

Reward of Equity FinancingReward of Equity Financing

Risk of Equity FinancingRisk of Equity Financing

• .

Equity FinancingEquity Financing

.

13-14

What are the Advantages of Sole Proprietorships and Partnerships?What are the Advantages of Sole Proprietorships and Partnerships?

13-15

What are the Disadvantages of Sole Proprietorships and Partnerships?What are the Disadvantages of Sole Proprietorships and Partnerships?

13-16

What are the Advantages and Disadvantages of Corporations?What are the Advantages and Disadvantages of Corporations?

AdvantagesAdvantages DisadvantagesDisadvantages

Pro forma Statement of Owners” (Partners) equityPro forma Statement of Owners” (Partners) equity

13-18

How do Partnerships Determine how Profits /Losses will be Allocated to the Partners?

How do Partnerships Determine how Profits /Losses will be Allocated to the Partners?

ExercisesExercises

ExercisesExercises

13-21

What are the Types of Stock Issued by Corporations?What are the Types of Stock Issued by Corporations?

13-22

What are the Most Common Preferences given to Preferred Stock?What are the Most Common Preferences given to Preferred Stock?

13-23

What are the Different “Numbers of Shares” Concerning Stock?What are the Different “Numbers of Shares” Concerning Stock?

13-24

What is Treasury Stock?What is Treasury Stock?

13-25

What are the “Values” Associated with Stock?What are the “Values” Associated with Stock?

13-26

What Types of Dividends are Distributed?What Types of Dividends are Distributed?

13-27

What are the 3 Dates Associated with Dividends?What are the 3 Dates Associated with Dividends?

13-28

What is the Difference Between a Stock Dividend and a Stock Split?What is the Difference Between a Stock Dividend and a Stock Split?

Exercise 13-10Exercise 13-10

Exercise 13-13Exercise 13-13

Exercise 13-14Exercise 13-14