Chapter 3

Bank of Montreal to raise up to $1.1 billion in common share issue

http://ca.news.yahoo.com/s/capress/081215/business/bmo_shares_1

Summary:
This article mainly about that Bank of Montreal decide to raise up to $1.1 billion in a common share offering, which means they will offer 33.3 million common shares at $30 per share. The capital will qualify as Tier 1 capital, and will be used for general corporate purposes. During the economic recession, all banks are affected and most of them are running out of cash because people withdraw their money to maintain their daily needs. In order to strengthen their capital ratio, banks will try different way to keep it up, and issuing more shares is one of the best ways. However, shares in the Toronto-based bank announced the equity issue was down $1.01 at $32.57.

Connection:
The connection to Chapter 3 is how issuing shares affect a company’s financial position and cash flow. This chapter is mainly about how the accounting cycle works. One of the most important step is the preparation of financial statements, and it includes balance sheet, income statement, cash flow statement and statement of retained earning. It is important that a company should be capable to earn money, but more significantly, a company should have enough cash for operating and investing. Bank of Montreal decided to issue more shares to exchange for more cash because it is a bank’s credit to give people back their money as long as they need, especially during the economic recession. For this reason, Bank of Montreal issued shares.

Reflection:
After reading this article, I realize the importance of cash flow for a company. In the accounting cycle, most of the steps is for the purpose of preparing the financial statement so that a company can operate properly accounting to it’s financial position, earnings and cash flow. For cash flow statement, there are three sections. The operating activities are one of the main cash inflow, and mostly investing activities cause cash outflow. When a company needs extra cash inflow, it is best through financing activities, and that is issuing shares or borrowing money. For a company as large as Bank of Montreal, money plays an extremely important role. For this reason, it is the best choice for it to issue more shares in case of need.