This ratio compares the liabilities of the company to its capital. The rationale is to depict
the financing components (equity and debt). The leverage ratio therefore, attempts to
measure the effects on both assets and equity of a demand by the creditors.A capital to liabilities ratio of 2 for example means that for every Le 1 of equity, the
company has Le2 of liabilities. It also means that the assets of the company are
financed 33% from equity and 67% from debt.The higher this ratio the riskier it becomes for equity capital, in respect of expectations
of future dividends (especially in depressed times of performance) and threat of
liquidation. The ratios of AIC, Transworld and IIC clearly indicated their need for
additional capital injection, as much of their funds are from debt than equity.o The statement of cash flows
This statement shows the sources and uses of cash, which is a basis for cash flow
analysis for financial managers. Cash is vital to the operation of every business. How
management utilizes the flow of cash can be determine by a firms’ success or failure.
Therefore, in recognition of the fact that cash flow information is an integral part of
both investment and credit decisions, the financial accounting standard board (FASB)
has issued statement No. 95, ‘statement of cash flows’.This pronouncement requires that enterprises include a statement of cash flows as part
of the financial statements. A statement of cash flows reports the cash receipts,
payments, and net change in cash on hand resulting from the operating, investing and
financing activities of an enterprise during a given period. The presentation reconciles
beginning and ending cash balances.❖ DIVIDENDS AND REPURCHASES
o The mechanics of dividends
Dividend Dates
i) Declaration Date – Date dividend is declared by the Board (Dividend becomes a
liability)
ii) Holder-of-Record Date – Owner of the stock at the end of business on this day
receives the dividend. Typically, a month or so after the declaration date.