MGAB02H3 Chapter Notes - Chapter 10: Canada Pension Plan, Current Liability, Unemployment Benefits
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Document Summary
Capital structure is the mixture of debt and equity that finances short- and long-term operating requirements of a company. From a firm"s perspective, debt capital is riskier than equity because interest and principal payments on debt are legal obligations that must be paid and if not paid can be forced by creditors into bankruptcy. Liabilities are debts or obligations arising from past transactions that will be paid with assets and services. Current liabilities are short-term obligations that will be paid within the normal operating cycle or one year, whichever is longer. Liquidity is the ability to pay current obligations. Current ratio = current assets current liabilities. Measures the amount of current assets available to satisfy current liabilities, high ratio suggests good liquidity but too high of a ratio suggests inefficient use of resources. Liabilities can both be recorded as they occur during the accounting period and can also be accrued through adjusting entries at the end of the accounting period.
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