BackFinancial Accounting: Equity and Investment Cost
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Terms in this set (20)
Equity represents the owner's residual interest in the assets of a company after deducting liabilities.
Equity is calculated as \(\text{Assets} - \text{Liabilities}\).
The cost of investment is the total amount paid to acquire an investment, including purchase price and related expenses.
Equity indicates the net value owned by shareholders and helps assess the financial health and value of a company.
Equity typically includes common stock, retained earnings, and additional paid-in capital.
An increase in liabilities, with assets constant, decreases equity.
The cost of investment affects the initial equity stake an investor holds in a company.
ROE is calculated as \(\frac{\text{Net Income}}{\text{Equity}}\), measuring profitability relative to equity.
A high ROE indicates efficient use of equity to generate profits.
Dividends reduce retained earnings, thus decreasing equity.
Retained earnings are accumulated net income not distributed as dividends, part of equity.
The cost of investment is recorded as an asset on the balance sheet at acquisition cost.
Issuing new shares increases equity by the amount of proceeds received.
Depreciation reduces asset value and net income, which can reduce equity over time.
Additional paid-in capital is the amount paid by investors above the par value of shares, part of equity.
Equity is reported under shareholders' equity section, showing ownership interest.
Losses reduce net income and retained earnings, thereby decreasing equity.
Stock buybacks reduce equity by decreasing outstanding shares and cash assets.
Equity = Assets - Liabilities, represented as \(\text{Equity} = \text{Assets} - \text{Liabilities}\).
It determines the basis for measuring returns and assessing investment performance.