equity

Examples of equity in the following topics:

• Debt-to-Equity Ratio

  • The Debt-to-Equity Ratio is a financial ratio that compares the debt of a company to its equity and is closely related to leveraging.
  • The Debt-to-Equity Ratio is a financial ratio indicating the relative proportion of shareholder's equity and debt used to finance a company's assets, and is calculated as total debt / total equity.
  • Interest payments on debt are tax deductible, while dividends on equity are not.
  • Calculating a company's debt to equity ratio is straight forward, and the debt and equity components can be found on a company's respective balance sheet.
  • For more advanced analysis, financial analysts can calculate a company's debt to equity ratio using market values if both the debt and equity are publicly traded.

• Equity Method

  • Equity method is the process of treating equity investments (usually 20–50%) of companies.
  • The investor keeps such equities as an asset.
  • Equity method in accounting is the process of treating equity investments, usually 20–50%, in associate companies.
  • The investor keeps such equities as an asset.
  • It is the ratio of the dividend yield of an equity and that of the long-term bond.

• Introduction to the Retained Earning Statement

  • The Statement of Shareholder's Equity is one of the four main financial statements prepared during a company's accounting cycle.
  • The Statement of Shareholder's Equity is also known as the Equity Statement, Statement of Owner's Equity (single proprietorship), Statement of Partner's Equity (partnership), and Statement of Retained Earnings and Stockholders' Equity (corporation).
  • The Statement of Shareholder's Equity shows the inflows and outflows of capital, including treasury stock purchases, employee stock options and secondary equity issuance.
  • Retained earnings are part of the balance sheet under Stockholders Equity (Shareholders Equity) and are mostly affected by net income earned by the company during a specified period, less any dividends paid to the company's owners/stockholders.
  • Retained Earnings are part of the Statement of Changes in Equity and are a component of shareholder's equity.

• Accounting Methodologies: Amortized Cost, Fair Value, and Equity

  • Due to different durations of holding and other factors, companies use several accounting methodologies, including amortized cost, fair value, and equity.
  • Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities.
  • Equity method in accounting is the process of treating equity investments, usually 20–50%, in associate companies.
  • The investor keeps such equities as an asset.
  • Explain the difference between amortized cost, fair value and the equity method for reporting debt securities

• Reporting Equity Investments

  • Investments recorded under the equity method usually consist of stock ownership of a company between 20% to 50%.
  • If other factors exist that reduce the influence, or if significant influence is gained at an ownership of less than 20%, the equity method may be appropriate.
  • To account for this type of investment, the purchasing company uses the equity method.
  • Under the equity method, the purchaser records its investment at the original cost.
  • Explain why a company would use the Equity Method to determine how to report their 20-50% investment

• Introduction to the Balance Sheet

  • The stockholder's equity or just equity refers to the ownership interest in a company.
  • The stockholder's equity is determined by subtracting liabilities from assets.
  • The difference between assets and liabilities is referred to as equity.
  • Equity is either calculated as proprietary or residual.
  • For residual equity dividends to preferred shareholders are deducted from net income before calculating residual equity holders' dividend per share.

• Recording Transactions

  • Cash -1,000, Rent Expense 1,000; Assets(-)=Equity(-)4.
  • You pay rent of $1,000 on August 1.Cash -1,000, Rent Expense 1,000; Assets(-)=Equity(-)5.
  • Cash 225, Sales Revenue 225; Assets(+)=Equity(+)b.
  • Inventory -150, Cost of Goods Sold 150; Assets(-)=Equity(-)6.
  • The class cost $15.Cash -15, Service Revenue -15; Assets(-)=Equity(-)8.

• Fundamental Accounting Equation

  • To ensure that a company is "in balance," its assets must always equal its liabilities plus its owners' equity.
  • The total assets listed on a company's balance sheet must equal the company's total liabilities, plus its owners' equity in the company.
  • As you can see, the business's total assets equal the company's total liabilities and equity.

• Relationships Between Statements

  • The four most common financial statements are the balance sheet, income statement, statement of cash flows and the statement of stockholder's equity.
  • The statement of shareholder's equity connects the income statement and the balance sheet.
  • The statement of shareholder's equity explains the changes in retained earnings between two balance sheet dates.
  • The statement of shareholder's equity reconciles changes in the equity accounts (contributed capital, other capital, treasury stock) from the beginning to the ending balance sheet.
  • Comprehensive income is reported on the statement of changes in shareholder's equity.

• Analyzing Long-Term Liabilities

  • Popular debt ratios include: debt ratio, debt to equity, long-term debt to equity, times interest earned ratio (interest coverage ratio), and debt service coverage ratio.
  • Data used to calculate these ratios are provided on a company's balance sheet, income statement, and statement of changes in equity.
  • $\frac { Long-Term\quad Debt\quad +\quad Value\quad of\quad Leases }{ Average\quad Shareholders\quad Equity }$