Textbook Notes (363,140)
Canada (158,217)
Accounting (526)
ACC 100 (209)
Else Grech (70)
Chapter 11

Chapter 11

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Ryerson University
ACC 100
Else Grech

Chapter 11Shareholders equityAn overview of shareholders equity Equity as a source of financingWhen company needs to raise money it must choose from the alternative financing sources that are availableFinancing divides into 2 general categoriesDebtborrowing from banks or other creditorsEquityissuing sharesIssuing shares is a popular method of financing becauseIts flexibleProvides advantages for the issuing company and the investors shareholdersInvestors are concerned with the return on their investmentWith shares the return may be in the form of dividends paid to the investors but may also be the price appreciation of the sharesShares are popular among creditors becauseProvide a higher rate of returnBut also higher degree of riskShares are popular with issuing companies becauseDividends on them can be adjusted according to the companys profitabilityHigher dividends can be paid when the firm is profitable and lower dividends when it is notSeveral disadvantages of issuing sharesShares have voting rights and issuing shares allows new investors to vote so existing investors may not want to share the control of the company with new shareholdersFrom issuing companies opinion there is tax disadvantage to shares versus debtDividends on shares are not tax deductible and do not result in tax savings to the issuing companyShareholders equity on the balance sheetSE is viewed as a residual remaining amountOwners of a company have a claim to all assets after the claims represented by liabilities to credits have been fulfilledSE has 2 major parts Total SEContributed CapitalREContributed capital is the amount the company has received from the sale of shares to shareholdersRE is the amount of net income that the company has earned but not paid as dividends but company retains and reinvests the income
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