What is the normal procedure to do investment in debt or equity?

a)  Conduct a thorough review of your objectives, risk tolerance, income and cash flow requirements, appreciation targets, estate planning and tax considerations and investment policy guidelines, etc. b)  Conduct In-depth analysis of the historical and expected returns, risk and correlation characteristics for each asset class. c)   Determine the portfolio of equity investment or debt investment to achieve the […]

What is the framework of audit in China?

What is debt to equity ratio?

Debt to Equity Ratio is also referred to as Debt Ratio, Financial Leverage Ratio or Leverage Ratio. The debt to equity (debt or financial leverage) ratio indicates the extent to which the business relies on debt financing. Upper acceptable limit of the debt to equity (debt or financial leverage) ratio is usually 2:1, with no […]

What kinds of transactions are often considered in a liquidity analysis?

Transactional alternatives that are frequently considered in a liquidity analysis include the following: a)Sale of the company’s stock in an initial public offering b)Sale of the company to a strategic acquirer c)Sale of the company to a financial investor d)Sale of a minority interest in the company to a passive investor e)Sale to the company’s existing management f)Sale of the company […]

What is the framework of audit in China?

What are the purposes of liquidity analysis?

The purpose of a liquidity analysis is to provide the business owner with an objective view of the value of his or her company. Furthermore, a liquidity analysis will help the business owner to understand the alternatives available that will permit him or her to tap into the wealth that may be trapped there. A liquidity […]

What are liquidity ratios?

The following liquidity ratios are all designed to measure a company’s ability to cover its short-term obligations. Companies will generally pay their interest payments and other short-term debts with current assets. Therefore, it is essential that a firm have an adequate surplus of current assets in order to meet their current liabilities. If a company […]

What is the framework of audit in China?

What are the factors that affect liquidity management strategies?

Liquidation of assets and maintaining borrowing reserves are two major liquidity management strategies. The dimensions of liquidity that affect these strategies include: Time necessary to covert assets into cash. Loss of value as a result of liquidation of assets. Availability of borrowing reserves.

What should be taken into account in designing capital structure?

Because there is no optimal capital structure, the choice between debt and equity will depend on a number of considerations: a)       Macroeconomic conditions. High real (inflation-adjusted) interest rates and low activity     growth will prompt companies to de-leverage. Inversely, rapid growth and/or low real interest rates will favor borrowing. b)       The desire to retain a degree […]

What is the framework of audit in China?

How do companies determine their capital structures?

The two most influential theories of capital structure are the tradeoff and pecking order theories. The first, the tradeoff model, argues that companies trade off the benefits of additional debt (tax deductibility of interest expenses, reduced agency costs of free cash flow) against the costs (bankruptcy risk) and at the margin equate the two. The […]

What is capital structure?

There are many methods for the firm to raise its required funds. But the most basic and important instruments are stocks or bonds. The firm’s mix of different securities is known as its capital structure. A natural question arises: What is the optimal debt-equity ratio? For example, if you need $100 million for a project, should […]

What is the framework of audit in China?

Why we use NPV when making investment decisions?

There are three attributes for NPV, making NPV is a popular approach to investment decision making. a)       NPV uses cash flows: cash flows from a project can be used for other corporate purpose (e.g., dividend payments, other capital-budgeting projects, or payments of corporate interest). By contrast, earnings are an artificial construct. While earnings are useful […]