Corporate Finance Flashcards
What are the rights of Common Shares? Cite legislation.
CBCA 24(3):
(a) To vote at shareholder meetings
(b) To receive dividends
(c) Assets on dissolution
What are three problems with par-value shares?
1) Misleading
2) Unnecessary
3) Administratively Difficult
Define “authorized capital” with reference to three legislative citations.
Authorized Capital is the amount of share capital that a corporation’s constitutional document authorizes that corporation to issue.
Authorized capital is presumed unlimited under the CBCA 6(1)(c). Under the NSCA a statement of unlimited shares is required: 10(a)(v). However, for par-value shares authorized capital must always be defined: 10(a)(iv).
What are “Par Value” shares? Make two legislative citations.
Par value is the minimum price per share that shares must be issued for in order to be fully paid.
They are abolished in CBCA 24(1).
They are allowed in NSCA 26(17)(b).
What are four features that may be added to bonds/debentures?
1) Call Feature – lets borrower repurchases the bond after a set date for a set price.
2) Sinking Fund - A fund set up for the lender to redeem a portion of his or her funds before the bonds mature.
3) Convertible – Convert bonds to shares
4) Warrants – Right to buy securities from Issuer @ fixed price for a fixed period of time.
Pneumonic: CSCW.
How is a bond different from a debenture?
Bonds are evidence of secured indebtedness. Debentures are evidence of unsecured indebtedness.
What is “Capital Structure”?
The way a corporation deals with:
1) Risk of loss,
2) Control,
3) Participation in profits while a going concern,
4) Participation in surplus & distribution on liquidation or dissolution.
What is a “Statement of Retained Earnings”?
Part of a company’s financial statement. It shows the amount of a net earnings that a corporation uses for reinvestment or debt repayment, as opposed to issuing dividends.
Retained Earnings = net earnings - dividends.
What are “Net Earnings”?
A company’s total revenue minus its i. operating expenses, ii. interest paid, iii. depreciation, and iv. taxes.
Pneumonic: OIDT
What is a “Cash Flow Statement”? What are its categories?
Part of a company’s financial statement. It tells an investor how much cash comes into the business during a given time period. There are three categories:
a) Operations
b) Investments
c) Financing Activities.
Cash flow offsets the limitations of an income statement and informs investors about the company’s ability to generate money, acquire assets & service its debts.
What are the contents of a financial statement, and how often must a financial statement be issued?
1) Balance Sheet
2) Income Statement
3) Statement of Retained Earnings
4) Statement of Changes in Financial Position
BIRE-CFP
Must be done yearly: CBCA 155(1)(a) NSCA 121(1).
What are two limitations of an Income Statement?
1) Distortion of company’s true financial position. This is because interest is tax deductible but dividends are not, so, ceterus paribus, a corporation using debt financing will report a lower income than one financed largely by equity
2) Net income may differ from a company’s cash situation because income statements use the “accrual method”.
What is an “Income Statement”?
Shoes net income over a period of time. It uses the accrual method.
What is a “Balance Sheet”? What are its categories?
A snapshot of the company’s financial position at a moment in time. It shows:
1) Assets
2) Liabilities
3) Shareholders Equity
What are the limitations of a “Balance Sheet”?
1) Not representative of a corporation’s past or its future.
2) The values shown are not FMV
3) The balance sheet does not include everything, for instance, good will.
