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Questions and Answers
What is the main purpose of a cash flow statement?
What is the main purpose of a cash flow statement?
- To provide a clear picture of a company's ability to repay debts (correct)
- To analyze the company's market share
- To show changes in balance sheet accounts and income
- To determine the long-term viability of a company
Who is responsible for ensuring that the company does not trade while insolvent?
Who is responsible for ensuring that the company does not trade while insolvent?
- Company Directors (correct)
- Potential investors
- Potential lenders or creditors
- Accounting personnel
Which group is interested in knowing whether the organization will be able to cover payroll and other immediate expenses?
Which group is interested in knowing whether the organization will be able to cover payroll and other immediate expenses?
- Potential lenders or creditors
- Potential investors
- Accounting personnel (correct)
- Shareholders
What does the cash flow statement break the analysis down to?
What does the cash flow statement break the analysis down to?
Which International Accounting Standard deals with cash flow statements?
Which International Accounting Standard deals with cash flow statements?
What is a debenture in corporate finance?
What is a debenture in corporate finance?
What is the relationship between debentures and share capital?
What is the relationship between debentures and share capital?
What is the payment priority for senior and subordinate debentures?
What is the payment priority for senior and subordinate debentures?
How do Non-Convertible Bonds work?
How do Non-Convertible Bonds work?
Do debenture holders have voting rights in the company's general meetings of shareholders?
Do debenture holders have voting rights in the company's general meetings of shareholders?
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Study Notes
Cash Flow Statement
- Main purpose: To provide information about a company's cash inflow and outflow, detailing operational, investing, and financing activities.
- Breaks analysis down into three main sections: operating activities, investing activities, and financing activities.
Insolvency and Responsibility
- Management is responsible for ensuring that the company does not trade while insolvent, protecting stakeholders' interests.
Stakeholder Interests
- Employees and payroll administrators are particularly interested in a company's cash flow to determine its ability to cover payroll and immediate expenses.
International Accounting Standards
- International Accounting Standard 7 (IAS 7) specifically addresses the requirements for cash flow statements.
Debentures in Corporate Finance
- A debenture is a long-term security yielding a fixed interest rate, issued by a company and secured against assets.
- Debentures are distinct from share capital as they represent a loan to the company rather than ownership stakes.
Payment Priority
- Senior debentures have priority over subordinate debentures during liquidation or bankruptcy, ensuring senior holders are paid first.
Non-Convertible Bonds
- Non-Convertible Bonds are fixed-income securities that cannot be converted into stock or equity of the issuing company, providing consistent interest payments until maturity.
Voting Rights of Debenture Holders
- Debenture holders do not possess voting rights in the company's general meetings of shareholders, contrasting with equity shareholders.
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