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I did but still don't get it :p I mean equity is just money investors has contributed if we are saying to increase equity aren't we saying that we are receiving more money from investors?
 
RandomInvestor said:
I did but still don't get it :p I mean equity is just money investors has contributed if we are saying to increase equity aren't we saying that we are receiving more money from investors?
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eq.png

In the balance sheet, Equity comprises of a few items.

One of them is Contributed Equity, i.e. capital that was put into the business by shareholders. ie. this is equity raise with the issuing of shares, either through dividend reinvestment or just printing new shares to raise cash.

The other is Retained Profit (or accum. losses).

This is where, to my mind anyway as I wasn't paying attention in accounting 101, an increase in revenue eventually increases Equity (eveything else being equal).

That is, the company makes more sales, more sales mean (usually) more profit; more profit mean no loss and retained earnings after paying dividends or special dividend (capital return).

So more revenue generally, but not always, increase equity in the sense that it eventually reaches the bottom line and profit is retained.
 
Why do you think that it increases shareholder's equity if it is paid out as dividends?
 
RandomInvestor said:
From what I can gather this link also helped me a bit : http://finance.zacks.com/increases-stockholder-equity-3005.html Ok so the company can decide with the money it made in revenue say $100 it can issue it as a dividend or retain the money. Or a bit of both, so if they retain the money it goes into retained earnings and if they give money to investors the stock holder equity goes up?
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REAeq.png

That statement above detail the movement from what Zack's refer to as Net Revenue (net profit, i.e. revenue after paying all expenses)... how earnings ends up contributing to Equity.

You're half right from what you're saying above... that when Net Profit are made, management decides to do, for sake of simplicity, two things: Retain it in the company; or Pay out in dividends; or a bit of both (ok, 3 things)...

The part of the year's net profit that is retained increases the Retained Earning account under the Equity section... The dividend that is paid out does not increases contributed equity; It is a form of capital return in this case.

What increases Contributed Equity would be when new shares are issued and new equity is raised (contributed).


This is why it's important to look at the detail of where "equity" came from. And you're on the right track in asking it.

That is, a good business, depending on its age, ought to have constant or small Contributed Equity as part of its total Equity. But its Retained Earnings (shown in green below) should be rising, and rising with higher dividend payout (purple).

If a company, say, keeps paying dividends but its RE is nought or stable with increasing Contributed Equity... it's a ponzi.

This is why, ahem, certain awesome software that takes the effort to dissect financial statements help investors make quick and fast sense of the business quality than just mere ratios and bottom line figures.

REA eq.png
 
So can you see why that is incorrect?
Check the definition for Shareholders equity,
Think about where dividends come from and where they go.
 
honestly, I give up.

RandomInvestor, my point in asking questions back at you was to get you to try to think through and research so that you might arrive at some of the answers yourself. If everything that pops in your head requires someone to tell you the answer then you will never learn how to learn anything.

ps. Think about what Retained Earnings are, then ask yourself if Dividends to investors could come from there.
 
galumay said:
honestly, I give up.

RandomInvestor, my point in asking questions back at you was to get you to try to think through and research so that you might arrive at some of the answers yourself. If everything that pops in your head requires someone to tell you the answer then you will never learn how to learn anything.

ps. Think about what Retained Earnings are, then ask yourself if Dividends to investors could come from there.
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Lol I had a feeling you might eventually you would not make a good teacher you wouldn't be able to deal with difficult students such as my self. I just have a hard time learning I have pretty much since I started school at least I'm trying.
 
Ok let's try this again I just woke up. Stock holders equity is the exact difference between total assets and total liabilities. So revenue increases that number In between correct? But since we said "exact difference" doesn't that mean assets or liabilities need to increase?
 
RandomInvestor said:
Lol I had a feeling you might eventually you would not make a good teacher you wouldn't be able to deal with difficult students such as my self. I just have a hard time learning I have pretty much since I started school at least I'm trying.
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Galumay has been the most patient of us all; abusing him won't make anyone else more inclined to provide further answers. This isn't a school for special needs children.
My final attempt to help you on your way:
Search the Investopedia, e.g.: http://www.investopedia.com/terms/r/retainedearnings.asp
Take your time. Start at "A", work your way through to "Z"
 
pixel said:
Galumay has been the most patient of us all; abusing him won't make anyone else more inclined to provide further answers. This isn't a school for special needs children.
My final attempt to help you on your way:
Search the Investopedia, e.g.: http://www.investopedia.com/terms/r/retainedearnings.asp
Take your time. Start at "A", work your way through to "Z"
Click to expand...

I didn't mean to abuse him. He has been sorta patient but I don't know if he understands I AM trying just having a hard time learning that is it. Don't think just because I don't understand it I have been waiting for you to provide me an answer.
 
I just looked at the video I know what stock holders equity and retained earnings is. I already knew that I just can't see the correlation why it would increase.
 
Bro I think I just cracked it! Maybe! So the stock holders equity has retained earnings. So if the share holders equity increases does that mean the assetshave increased? And the asset that increases is retained earnings? So that's why it increases?

Like retained earnings is an asset? And that's why the company total assets would increase thus making the number inbetween total assets and total liablities bigger?
 
RandomInvestor said:
I did but still don't get it :p I mean equity is just money investors has contributed if we are saying to increase equity aren't we saying that we are receiving more money from investors?
Click to expand...

RandomInvestor said:
Lol I had a feeling you might eventually you would not make a good teacher you wouldn't be able to deal with difficult students such as my self. I just have a hard time learning I have pretty much since I started school at least I'm trying.
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There's the problem, blaming the teacher.

Maybe there's some value in listening to what he's saying. Especially this part:
"my point in asking questions back at you was to get you to try to think through and research so that you might arrive at some of the answers yourself"
 
Klogg said:
There's the problem, blaming the teacher.

Maybe there's some value in listening to what he's saying. Especially this part:
"my point in asking questions back at you was to get you to try to think through and research so that you might arrive at some of the answers yourself"
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Mate I read it alot of times I just don't get it. I don't see what I am doing wrong? I have done my research also.
 
One last thing when we say stock holders equity increased aren't we supposed to refer to a section like retained earnings? So revenue increases a "component" in stock holders equity? Now that makes sense. So if the company retains earnings it goes into the retained earnings section and this increases the share holders equity?
 
Hey guys question I am reading this book on financial statements and it shows where certain stuff would be enterered where. But one part I don't get is the retained earnings it gets increases by certain stuff like in this page it says "lower retained earnings in the liabilities section of the balance sheet by 103,000 sales and marketing expenses. How is retained earnings lowered due to marketing expenses?
 
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