Impact of the Sarbanes-Oxley Act
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When a company decides to go public, it can typically obtain capital by issuing stocks or bonds. Suggest four (4) leading financial ratios that will be evaluated and how each will impact the company's decision to obtain expansion funds. Determine whether the results of the ratios would alter the decision to go public.
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Solution Summary
Your discussion is 408 words and a reference and identifies ROA, ROE, net profit margin and times interest earned and explains how issuing bonds and stocks impacts them and whether this would impact the decision to issue.
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Four leading financial ratios:
Return on assets
Issuing stocks or bonds will increase total assets. If the new cash is deployed so that it earns more than the rate of return of the existing assets, this ratio will increase. If not, it will decrease. Therefore, if the new projects that will be funded by the stocks or bonds do not have an estimated return over the current average ROA, it will likely be denied.
Return on equity
Issuing stocks will increase total assets and total equity. Issuing bonds will only increase total assets.
Stocks: If the new cash is deployed so that it earns more than the rate of return of the existing assets, ...
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