How do I determine how the firm is financing investment in assets?
How do I determine how the firm is financing investment in assets?
Based on Lowe's 2019
Long-term Debt – $16,768mil
Common Stock, $.50 par value $381mil
Preferred Stock, $5 par value, none issued
What would this mean to an investor?
We can start with the accounting equation
Assets = Liabilities + Shareholders Equity
That is assets are financed by debt or equity
A portion of assets are brought by issuing debt and a portion of assets are brought by issuing equity shares
Although liabilities include current liabilities . Current liabilities also generate or finance assets of an entity
This can be said with an example -
A firm has working capital loan to purchase raw material . Raw materials being inventories are assets to the entity
So, the current liability is contributing for creation of an asset that is raw material
At the same time let a firm need to purchase machinery using a bank loan
That is machinery being an asset is brought using a debt ( Long term liability) or we can also buy it through additional funding from share holders that is issue of equity shares.
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