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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Communication

The president of Freeman Industries Inc. made the following statement in the annual report to shareholders: “The founding family and majority shareholders of the company do not believe in using debt to finance future growth. The founding family learned from hard experience during the Great Depression that debt can cause loss of flexibility and eventual loss of corporate control. The company will not place itself at such risk again. As such, all future growth will be financed either by stock sales to the public or by internally generated resources.”

Write a brief memo to the company’s president, Boss Freeman, outlining the errors in his logic.

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

To prepare:  Memo to the company’s president

Explanation

To: B

From: A Student

Re: Debt vs. Equity financing

Dear B,

The company’s history has been reviewed cautiously and I highly appreciate the challenges that your company has gone though during the downturns. Also, the conservative approach towards the debt financing is highly appreciated. Presently, you’re not willing to issue debt...

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