Owners' Equity Paper

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Owners' Equity Paper
Michelle McDaniel
University of Phoenix

Owners' Equity Paper
Investors have to keep a close eye on many different parts of their investments. First, keeping the paid-in capital separate from the capital earned. Paid-in capital is the total amount of stock purchased by the shareholders. Where earned capital is the profit earned from operations. Second, the investor needs to keep track of the capital earned this creates dividends to be paid in the long run. Paid-in capital does not apply to the investor just the firm in which the stock is held. Finally, diluted earnings per a share are a better representation of the actual profit the investor can earn. The earnings per a share are firm’s general earnings without taking in to account the convertibles, warrants and stock options. Why is it important to keep paid-in capital separate from earned capital? Paid –in capital is grand total of the paid in on the capital stock. This is the amount provide by the stockholders to the business or corporation. Earned capital is accumulated from profitable operations this contains all the undistributed income in which remains invested in the business or corporation. The reason is keeping paid-in capital and earned capital separate is so important is because they are two entirely different financial items. The paid in capital is a key item to the firm but does not have much meaning to the investor. Earned capital is both important to the investor and the firm because earned capital is the representation of the earnings based of business operations. As an investor, paid-in capital or earned capital more important?

Earned capital is more important to an investor because it indicates the company is profitability, not just able to attract additional income from owners and investors. Paid in capital is just the total investment into the company it does not represent the profitable earnings to...
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