Introduction
Equities is the owner’s
claim of the company assets after minus out the liabilities. Revenue that
reinvested back into the company will be part into equity as well.
Component
of Equities
Equities can be separated
into four large components as follows:
2.3.1
Capital Contributed by the owners
This is the amount contributed by the
owner through common shares. Usually capital contributed is multiply of the par
value of the common share par value by number of share outstanding.
2.3.2
Preferred Shares
Preferred shares work like bonds but
have lower priority to claim the company assets than bond when the company
dissolve. Preferred share promised to pay the owner a certain percentage of dividends
annually. Only non-redeemable can be classified as equity. On the other hand, the
redeemable preferred shared are classified as liability.
2.3.3
Treasury Shares
Shares that had brought back by the
company and not cancelled are called the treasury shares. Treasury shares does
not had voting right and reduce the outstanding shares of the company.
2.3.4
Retained earning
Every year the management can decide to distribute
the profit after tax to owners through dividend or reinvests it back into the company.
The reinvested amount are called the retained earnings and can accumulated
through the years.
