Session 7&8&9

Question 1

Accrual accounting

Answer 1

Accrual accounting is an accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur.

Question 2

Treasury stock

Answer 2

A treasury stock or reacquired stock is stock which is also bought back by the issuing company, reducing the amount of outstanding stock on the open market (“open market” including insiders’ holdings).
Treasury stock may have come from a repurchase or buyback from shareholders; or it may have never been issued to the public in the first place. These shares don’t pay dividends, have no voting rights, and should not be included in shares outstanding calculations.

Question 3

Minority interest

Answer 3

A significant but non-controlling ownership of less than 50% of a company’s voting shares by either an investor or another company. 2. A non-current liability that can be found on a parent company’s balance sheet that represents the proportion of its subsidiaries owned by minority shareholders.

Question 4

Insolvency vs bankruptcy

Answer 4

Insolvency
Insolvency is essentially the state of being that prompts one to file for bankruptcy. An entity – a person, family, or company – becomes insolvent when it cannot pay its lenders back on time. In general, this occurs when the entity’s cash flow in falls below its cash flow out. For individual debtors, this means that their incomes are too low for them to pay off their debts. For companies, this means that the money flow into the business plus and its assets are less than its liabilities.
Typically, those who become insolvent will take certain steps toward a resolution. One of the most common solutions for insolvency is bankruptcy.

Bankruptcy
Bankruptcy is a legal declaration of one’s inability to pay off debts. When one files for bankruptcy, one obliges to pay off what is owed with help from the government. In general, there are two main forms of bankruptcy – reorganization and liquidation bankruptcy. Under reorganization bankruptcy (Chapter 13), debtors restructure their repayment plans to make them more easily met. Under liquidation bankruptcy (Chapter 7), debtors sell certain assets in order to make money they can use to pay off their creditors.

Question 5

Dilution

Answer 5

A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur when holders of stock options (such as company employees) or holders of other optionable securities exercise their options. When the number of shares outstanding increases, each existing stockholder will own a smaller, or diluted, percentage of the company, making each share less valuable. Dilution also reduces the value of existing shares by reducing the stock’s earnings per share.
Share dilution may be imminent any time a company needs additional capital. The potential upside of share dilution is that the additional capital the company receives from issuing additional shares can improve the company’s profitability and the value of its stock.