Tutor profile: Al C.
Subject: Corporate Finance
What is capital structure and why is it important to the financial viability of a company?
The capital structure is the balance between equity and debt that a firm uses to finance its assets and operations. These sources may include debt (bond issues and notes) and equity (various direct infusions of from owners or stock). The capital structure is important because it determines risk profile, how easy and expensive additional funding will be and the company's insulation from business decisions and economic downturns.
What is the difference between the 'book value per share' and 'market value per share' of a company?
The book value of a company is a company’s assets minus its liabilities. The ‘book value per share” is determined by dividing the value of common equity (derived from the balance sheet) by the number of outstanding shares. For example, if a company has a book value of $10M and 1M shares outstanding then the book value per share is equal to $10. Now here’s an interesting twist – the market (actual investors) may determine a different value for common equity. This may happen because investors realize that certain assets are under performing and worth less than stated on the balance sheet. In our example, if an investor determines that the assets are worth $5M rather than $10M, the market value per share (or the share value on the open market) would drop to $5 instead of the $10 book value per share. $5M/1M shares outstanding = $5 market value per share. In this example the stock (share) would trade for $5 instead of $10 and the market would value the common equity at $5M.
What are the critical functions of managers?
Managers plan, organize, lead, and control (POLC) resources to achieve specific goals. When planning mangers set goals and identify the best way to achieve them. When organizing they allocate resources (people, equipment, and money) to execute the businesses plans. When leading managers direct and motivate employees to achieve organizational goals. Finally controlling involves monitoring performance by comparing actual to expected results and taking corrective action as needed.
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