Stockholders equity

Let us consider the simplified balance-sheet or position statement shown in Table 9-21. Essentially, total assets are related to habilities and stockholders equity by... 

Total assets = stockholders equity -t- total debt (9-135) Equation (9-135) can also be written as... 

Stockholders equity = total assets — total debt (9-136) Equations (9-130) and (9-136) can be combined to give net annual profit... 

Total assets 100,000 Total liabilities and stockholders equity 100,000 Y Company balance sheet... 

The difference between equity financing and debt financing is not always clear-cut. For example, preferred stock can be classified as stockholders equity or debt, depending on who is doing the financial analysis. 

Equity Financing Typically, the company balance sheet will show the stockholders equity and list the preferred stock, common stock, and retained earnings as in Table 9-23. 

TABLE 9-23 Stockholders Equity as Shown in Section of a Company s Balance Sheet... 

Retained earnings Common-stock equity Total stockholders equity... 

Both common and preferred stocks normally have a par, or nominal, value. In the case of common stock, the market value at the time of issue usually differs from the par value. Stock can be issued either at a premium or at a discount, depending on prevailing economic conditions and the strength of the company. The difference between the actual amount paid and the par value is listed in the stockholders -equity section of the balance sheet, as shown in Table 9-23. The issuance of stock at a premium or a discount is done to protect existing stockholders. 

Stockholders equity in a company is made up of the capital contributed by the stockholders and the capital generated from retained earnings. The presence of retained earnings on a balance sheet, as shown in Table 9-23, does not necessarily mean that they are matched by an equal amount of cash. In fact, there may be little or no cash available. The retained earnings shown on a balance sheet may be largely fictitious. For example, the assets on a balance sheet may be worth less than shown by at least the value of the retained earnings. 

This value corresponds to 11.71 cents per dollar of common stockholders equity. 

Total assets 0.660 As Total liabilities and stockholders equity 0.660 As... 

In Table 9-34, the cash income for the year has been absorbed in the increase in stockholders equity, which consists of issued stock plus retained profits or income. 

The reconciliation between the cash flow statement and the income and expense statement is as follows. Start with the 40,000 from the last line in the cash flow statement, subtract 20,000 for the depreciation expense, and add back the 30,000 mortgage loan principal payment (not an allowed expense). The result is the net after-tax earnings. Figure B.ll is a set of statements from a small oil company. The statement of operations lists revenue and expenses, whereas the balance sheet lists various assets, liabilities, and stockholders equity ( net worth ). So-called capital items such as buildings, equipment, oil and gas property, and various intangibles are assets. Operating costs are deductions from revenues for operations not including expenditures for capital items. 

Balance Sheet The balance sheet represents an accounting view of the financial status of a company on a particular date. Table 9-3 is an example of a balance sheet for a company. The date frequently used by corporations is December 31 of any given year, although some companies are now using June 30 or September 30 as the closing date. It is as if the company s operation were frozen in time on that date. The term consolidated means that all the balance sheet and income statement data include information from the parent as well as subsidiary operations. The balance sheet consists of two parts assets are the items that the company owns, and liabilities and stockholders equity are what the... 

Balance sheet This is an accounting, historical tabulation of assets, liabilities, and stockholders equity for a company. The assets must equal the liabilities plus the stockholders equity. 

Stockholders equity is the interest that all stockholders have in a company and is a liability with respect to the company. This category includes preferred and common. stock as well as additional paid-in capital (the amount that stockholders paid above the par value of the stock) and retained earnings. These are earnings from accumulated profit that a company earns and are used for reinvestment in the company. The sum of these items is the. stockholders equity. 

On a balance sheet, the sum of the total liabilities and the stockholders equity must equal the total assets, hence the term balance sheet. Comparing balance sheets for successive years, one can follow changes in various items that will indicate how well the company manages its assets and meets its obligations. 

Consider a publicly traded company with products you are familiar with. Obtain a copy of the company s annual report. Examine and interpret the cash flow, income, and balance statements. Is the company profitable Did the company s cash position improve or degrade last year Did stockholder equity improve or degrade last year Calculate the ratios discussed in this section. Using library data or data off the Web, compare the companies averages to industry averages. In what ratios is the company s position favorable or not. 

Modem balance sheets often use the general term liabilities in place of equities. Current liabilities are grouped together and include all liabilities such as accounts payable, debts, and tax accruals due within 12 months of the balance-sheet date. The net working capital of a company can be obtained directly from the balance sheet as the difference between current assets and current liabilities. Other liabilities, such as long-term debts, deferred credits, and reserves are listed under separate headings. Proprietorship, stockholders equity, or capital stock and surplus complete the record on the equity (or liability) side of the balance sheet. 

Stockholders equity Common stock. 5 par value Shares authorized, 50.000.000 Shares issued. 34.465.956 172,330.000... 

Investments and long-term receivables (at cost) 94,009 Stockholders" equity ... 

Total assets 460,592 Total liabilities and stockholders equity 460,592... 

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