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How does the issuing of capital stock effect net income?
Somebody please correct me if I am wrong, but issuing capital stock increases total assets. If one considers total assets when calculating net income, any capital stock or additional paid in capital must be deducted from total assets in order to find net income. Issuance of stock does not contribute to income from operations; it is a financing activity that contributes to total equity. Also, if there are dividend payments for the year, these outflows must be added to assets before arriving at net income.
Working capital formula?
The formula for calculating working capital is: Working Capital = Current Assets - Current Liabilities. It represents a company's ability to cover its short-term obligations with its current assets. A positive working capital indicates that a company has enough assets to cover its liabilities, while a negative working capital may suggest liquidity issues.
Difference between debenture and preference share?
Preference shares are equity form of capital while debentures are debt form of capital both type of capital has preference to be paid before the normal share capital holders in case of liquidation but interest paid on debentures is tax deductable which means that by paying interest company can save tax as interest reduces the net income of company while preference share holders receive interest after tax deducted net profit.
Why currentliabilities less from current asset when calculating working capital in financial management?
Working capital is that amount of money which is available for management to use for day to day business activities and it is assumed that management should maintain enough current assets to pay off current liabilities as they become due that;s why amount above current liabilities is the free working capital available for management and that's why current liabilities are deducted from current assets to find out the free cash flow to use.
The residual interest of the owner after liabilities are deducted from assets is known as?
equity
Do you include Deferred income taxes current for calculating current assets in working capital calculation?
No you dont. Think about it, part of the equation for free cash flow is defined as subtracting out changes in working capital, capex, and changes in deferred taxes. changes in deferred taxes should be used in calculating cash taxes, not changes in working capital
Advantages and disadvantages of preference share?
Some of the advantages of the preference share is the absence of the fixed regular income and less capital loses. Some of the disadvantages includes the dilution of claim over assets and the high rate of dividends.
How is mathematics used in financial accounting?
In financial accounting, mathematics is used in calculating changes to the capital, assets and liabilities of a company. Most transactions are recorded in mathematical figures.
Is tax recoverable deducted from current assets in calculation of quick ratio?
yes
Why the cost of preference share is less then the cost of equity?
preference shares are more costlier because:- 1. they get preference for repayment of capital 2.they get preference for payment of dividend 3.they are less risky 4. can get charge over fixed assets 5.they are also convertible ans can further be expanded using these points
Should a gain on the sale of land be added to net income in calculating net cash flow from operating activities using the indirect method?
It should be deducted from operating activities and should be included in investing activities as dealing with assets is a part of investing activities.
Is gross working capital refers to the company's investment in current assets?
Gross Working Capital is the difference between the current assets and current liabilities where 'current' implies 'within one year' i.e Working Capital = Current Assets - Current Liabilities Working Capital is added to the Fixed Assets to get Net Fixed Assets of a company. i.e. Net Fixed Assets = Fixed Assets + Working Capital
