Financial Accounting, Ch. 11: Reporting and Analyzing Stockholders’ Equity How can companies control the value of...

Financial Accounting, Ch. 11: Reporting and Analyzing Stockholders’ Equity

How can companies control the value of their stock?

What are some methods that investors can use to determine if a corporation is worth investing in?

Solutions

Expert Solution

The value of the company is measured by its market cap. Market cap is the product of the share price and the number of shares outstanding.

Although, both the creterias are to be determined by the company, there are many factors that go for determining these.

The share price is decided by many factors :

1. Demand and supply - determined by buyers and sellers in the market (similar to law of economics)

2. Sudden change or temporary change in price - political events, dividend declaration, earnings report etc.

3. Performance - measured by numbers example- EPS, ROA, ROE, Financial statements, Liquidity ratios, Leverage ratios etc.

4. Beyond numbers is the "herd instinct"- also known as behavioural instict to follow the peers in society.

In each of the points mentioned above, the company can pro-actively act and be a market leader and take it to its stride.

Like-wise, every prudent investor analyses the company before investing in it.

It may be done systematically as follows :

1. Fundamental Stock Analysis : Using the financials, evaluate its EPS, growth rate, potential earnings, hidden weakness if any.

2. Market Analysis : The health of the industry concerned and its volatality

3. Technical stock Analysis : Using the daily, weekly, monthly reports and using the statistical tools.

4. Historical Preceedent Analysis

5. Recent trends in stock market

6. Further study if needed- using the statistical measures like NPV , Pay back period etc.,

After all these routine checks, one has to be cautious in investing in those companies in which the investor has not understood them well.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Accounting 2 - Financial Accounting, Ch. 10: Reporting and Analyzing Liabilities : What factors should management...

Accounting 2 - Financial Accounting, Ch. 10: Reporting and Analyzing Liabilities : What factors should management consider in determining if borrowing funds is a viable solution? In acquiring funds to finance major projects, how should management choose from among the alternatives?

We are reading Financial Accounting, Ch. 6: Reporting and Analyzing Inventory and below I am having...

We are reading Financial Accounting, Ch. 6: Reporting and Analyzing Inventory and below I am having difficulty with. What are some inventory classification methods?

Problem 11-26A Analyzing the stockholders' equity section of the balance sheet LO 11-2, 11-3, 11-7 The...

Problem 11-26A Analyzing the stockholders' equity section of the balance sheet LO 11-2, 11-3, 11-7 The stockholders’ equity section of the balance sheet for Mann Equipment Co. at December 31, Year 1, is as follows Stockholders’ Equity Paid-in capital Preferred stock, ? par value, 4% cumulative, 240,000 shares authorized, 54,000 shares issued and outstanding $ 540,000 Common stock, $30 stated value, 290,000 shares authorized, 54,000 shares issued and outstanding 1,620,000 Paid-in capital in excess of par—Preferred 44,000 Paid-in capital in...

Reporting Stockholders' Equity Using the following accounts and balances, prepare the Stockholders' Equity section of the...

Reporting Stockholders' Equity Using the following accounts and balances, prepare the Stockholders' Equity section of the balance sheet using Method 1 of Exhibit 8. 100,000 shares of common stock authorized, and 10,000 shares have been reacquired. Common Stock, $50 par $3,500,000 Paid-In Capital from Sale of Treasury Stock 70,000 Paid-In Capital in Excess of Par—Common Stock 630,000 Retained Earnings 1,855,000 Treasury Stock 32,000 Stockholders' Equity Paid-In Capital: Common Stock, $50 Par $ $ Total Paid-in Capital $ Total $ Total...

In financial accounting, why is reporting control procedures required (in governmental and GAAP reporting requirements) and...

In financial accounting, why is reporting control procedures required (in governmental and GAAP reporting requirements) and what information does it reveal about the company?

Identifying and Analyzing Financial Statement Effects of Dividends The stockholders’ equity of Palepu Company at December...

Identifying and Analyzing Financial Statement Effects of Dividends The stockholders’ equity of Palepu Company at December 31, 2015, appears below. During 2016, the following transactions occurred: Required a. Using the financial statement effects template, illustrate the effects of these transactions. b. Prepare the journal entries for these transactions. c. Post the journal entries from b to the related T-accounts. d. Prepare a retained earnings reconciliation for 2016 assuming that the company reports 2016 net income of $283,000. Hint: Do not...

Analyzing and Identifying Financial Statement Effects of Dividends The stockholders’ equity of Kinney Company at December...

Analyzing and Identifying Financial Statement Effects of Dividends The stockholders’ equity of Kinney Company at December 31, 2015, is shown below: 5% preferred stock, $100 par value, 10,000 shares authorized; 4,000 shares issued and outstanding $400,000 Common stock, $5 par value, 200,000 shares authorized; 50,000 shares issued and outstanding 250,000 Paid-in capital in excess of par value-preferred stock 40,000 Paid-in capital in excess of par value-common stock 300,000 Retained earnings 656,000 Total stockholders' equity $1,646,000 The following transactions, among others,...

Identifying and Analyzing Financial Statement Effects of Dividends The stockholders' equity of Kinney Company at December...

Identifying and Analyzing Financial Statement Effects of Dividends The stockholders' equity of Kinney Company at December 31, 2011, is shown below. 5% preferred stock, $100 par value, 10,000 shares authorized; 4,000 shares issued and outstanding $ 400,000 Common stock, $5 par value, 200,000 shares authorized; 50,000 shares issued and outstanding 250,000 Paid-in capital in excess of par value—preferred stock 40,000 Paid-in capital in excess of par value—common stock 300,000 Retained earnings 656,000 Total stockholders' equity $1,646,000 The following transactions, among...

Identifying and Analyzing Financial Statement Effects of Dividends The stockholders' equity of Hammel Company at December...

Identifying and Analyzing Financial Statement Effects of Dividends The stockholders' equity of Hammel Company at December 31, 2016, is shown below. 5% preferred stock, $100 par value, 10,000 shares authorized; 6,000 shares issued and outstanding $600,000 Common stock, $5 par value, 200,000 shares authorized; 70,000 shares issued and outstanding 350,000 Paid-in capital in excess of par value—preferred stock 50,000 Paid-in capital in excess of par value—common stock 400,000 Retained earnings 747,000 Total stockholders' equity $2,147,000 The following transactions, among others,...

Identifying and Analyzing Financial Statement Effects of Dividends The stockholders' equity of Kinney Company at December...

Identifying and Analyzing Financial Statement Effects of Dividends The stockholders' equity of Kinney Company at December 31, 2011, is shown below. 5% preferred stock, $100 par value, 18,000 shares authorized; 8,000 shares issued and outstanding $ 800,000 Common stock, $5 par value, 200,000 shares authorized; 50,000 shares issued and outstanding 250,000 Paid-in capital in excess of par value—preferred stock 40,000 Paid-in capital in excess of par value—common stock 300,000 Retained earnings 656,000 Total stockholders' equity $2,046,000 The following transactions, among...

Subjects