CASE 2B The importance of balance sheets in making decisions Newspaper articles often refer to balance sheets with terms such as ‘the importance of a strong balance sheet’, and ‘not wanting to weaken a strong balance sheet or adversely affecting the debt rating by a stock buyback’.

Required:

1 What is meant by a strong balance sheet?

2 What is the effect of issuing more shares on the strength of the balance sheet?

3 What is meant by a share buyback?

4 What effect does a share buyback have on the accounting equation?

5 What is meant by a debt rating? Why is it important?

6 Why is a strong balance sheet important for each of the Australian state governments?