Disclosure Analysis Paper

Running Head: OWNERS’ EQUITY PAPER

Owners’ Equity Paper

The owners’ equity portion of the balance sheet is used to show the owners capital, which is the amount left over after all expenses. This section is always broken into two parts: paid in capital and retained earnings (Stockholders’). Understanding the difference between the two types of capital and how they can affect earnings per share is essential to good investing.

As mentioned above, paid in capital and retained earnings are reported separately under the stockholders equity section of the balance sheet. Paid capital is any capital contributed by the shareholders. This amount includes any money paid in excess of par value for stock, or cash investments made by shareholders. Money received from selling stock, or investments from shareholders are not consistent and should be evaluated closely by investors. Stock prices are always changing, so the amount of paid in capital can change every year. Retained earnings are amounts that are generated by continuing operations. A larger amount of retained earnings is a good sign because it suggests the company is generating enough income to meet expenses and have money left over. Too much retained earnings could be a bad sign that the company is not properly reinvesting.

Investors look at both retained earnings and paid in capital when making a decision to buy stock in a company. What a company does with its retained earnings affect an investors decision as much as the amount of earnings retained. Investments should only be made from the retained earnings account if it can create a decent profit, otherwise a dividend is given to shareholders (McClure). By comparing the profits retained overtime and the profits earned in that same time period, an investor can determine how well retained earnings are invested. Paid in capital

At the end of the accounting cycle, total stockholders’ equity is either restricted for reinvestment, or paid to the...