ACCT10002 Lecture Notes - Lecture 10: Donaldson Brown, Cookie Jar, Capital Structure
Document Summary
Chapter 10: annual reports, performance, measurement and disclosure; Capital structure: the non-assets side of bs (liabilities and equity) that indicates where funding is coming from. Consideration of such items can provide different measure of debt and equity and result in different ratio analyses. Developed in 1914 by electrical engineer, mr. f. donaldson brown. Benefits: simple, easy to calculate and understand, linked to management improvement and compensation schemes. Could they be managed? (manipulated: does(cid:374)(cid:859)t i(cid:374)(cid:272)lude a cost of capital. Du pont method of analysis in 3 levels: Level 3: profit margin and ato can be analysed further: receivables turnover, inventory turnover, selling expenses to sales ratio, etc. When ebit is determined then ebit is shared between 3 parties: banks/financiers (interest payments, taxation office (income tax expense, shareholders (npat) Ebit is the return generated by management using the assets at their disposal. Provides measure of reliance on debt to fund assets of business.
