What is the difference between operating and non-operating assets? How do we det

Question

What is the difference between operating and non-operating assets? How do we determine the value of a corporation (you may use the formula)? What do we mean by 'value-based management?" Name three things managements might do that would harm a firm s intrinsic value What are the four dates associated with a declared dividend. Please define the term " cash dividend." When dealing with dividend policy, what is the clientele effect? What is the difference between a stock dividend and a stock split? Why might increasing the debt in a firm's capital structure decrease the stock prie Why might issuing more stock signal problems at a firm? Why would a firm consider keep a reserve borrowing capacity? What impact might the threat of bankruptcy have on a firm? What are the twin goals of inventor.. management? What is the cash conversion cycle? What is an 'aging schedule," and what is its importance? What is a line of credit?

Explanation / Answer

1) Operating assets are essential for the ongoing operations of a business whereas the non operating assets are not essential however being reported in balance sheet that provide return on investment

2) The value of a company is its market capitalisation. It is calculated by the total number of shares x market value of each share

3) Value based management means maximising the shareholder value or increasing the trading value of the stock. The value of the company is determined by its discounted future cash flows

4) Three things affecting the value of the firm - Performance decisions, profitability concerns on internal operation of the firm, management board selection

5) Four dates are - Declaration date, Date of record, Ex-dividend date and payment date

6) A cash dividend is money paid to stockholders, normally out of the corporation's current earnings or accumulated profits

7) Consider a company that currently pays a high dividend and has attracted clientele whose investment goal is to obtain stock with a high dividend payout. If the company decides to decrease its dividend, these investors will sell their stock and move to another company that pays a higher dividend. As a result, the company's share price will decline.

8) Stock dividends are similar to cash dividends and Stock splits occur when a company perceives that its stock price may be too high. They are done to increase the liquidity of the stock

9) Increasing the debit would mean higher interest payout to the banks and financial institutions hence stock price would decrease since the profits available to stock holders will decrease

10) More stock would mean more dividend and earnings expectations from the market. There should be a right mix of debt and equity

11) Reserve Borrowing Capacity exists when a firm uses less debt under "normal" conditions than called for by the tradeoff theory. This allows the firm some flexibility to use debt in the future when additional capital is needed.

12) Threat of bankruptcy means insolvency of the firm to finance the debts which means the creditors will have lien on the assets thereby disrupting the flow of company's operation

13) The two goals of inventory management is to reduce the stock holding period and procure stocks at competitive prices in the market

14) Cash conversion cycle is the complete process flow of receipt of order till the billing to the receipt of cash from the customers. This would essentially be expressed in days to understand the length of realising the cash

15) Ageing schedule is like a report on the ageing inventory, ageing accounts receivable or even payable which are required to monitor the movement of these items as the cash is being blocked in these assets.

16) Line of credit is the amount of credit extended to a borrower

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