Question

Q4. (25 marks)

Explain the different method of Bonds and Investment Accounting we have done in class. If you start your own private company and wish to raise capital, what ratios should you consider important?

Answer 1

Bonds Bonds are the debt instruments (a loan) which issued for a period of more than one year. investor receives the interest on there lending money, while the borrower (issuer) get needed capital. Bond has the maturity value and amount that is paid to bondholders. Bond may be: 1 Fixed interest rate: 2 Floating rate: Interest rate paid consistently at the same rate Interest based on the economic changes Equity = Common stock Equity are the owers of the company which has the voting rights and receives the dividend on there investment common stock receives after paid to creditors, bondholders, and preferred stockholders. At the time of liquidation, common stock receives weather assets are remain after paid creditors, bondholders, and preferred stockholders.

For the rasing the capital we have to check the company's Debt to equity ratio measures the firm's abiltiy to pay there long-term debt and how well long-term creditors are protected. It measures the relationship of debt to equity when fianancial assets are purchase. Solvency ratio measure an enterprise's ability to meet its debt obligations and is used often by prospective business lenders whether a company cash flow is sufficient to meet its short-and long-term liabilities Financial leverage ratio Financial leverage is the method of using the debt rather than equity in the purchase of assets It may be helpful to annalysis the company decission making.