What are the Components of Stockholders Equity?
Equity Instruments
Investment media representing an ownership position is the equity investment in which the investor is an owner of the firm and is thus entitled to a residual share of profits.
Components of Equities
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Capital structure refers to long-term sources of financing for a firm. It consists of long-tern debt and equities. Shareholders’ equity is a residual item that is not fixed. It is the difference between the assets and all other liabilities of a firm which is found as:
| Assets – Liabilities = Equity |
However, the equities of a firm are comprised of the following components:
The amount of money paid by the owners of the organization measured as the product of par value (face value) and the number of shares outstanding. Common stock may be defined as the residual ownership of a corporation, which is entitled to all assets and earnings after the other limited claims have been paid and which has the basic voting control. In short, common stock is the fundamental ownership equity. The investor in common stock thus occupies a position directly comparable to that of the owner of a firm or a factory. Common stock bears the main burden of the risk of the enterprise and also receives the lion’s share of the advantages of success. Common stock has no maturity date rather its life is limited by the length of time stated in the corporate charter.
The amount which is measured by the par value of any shares outstanding promising to pay a fixed rate of return in the form of a fixed dividend. Preferred stock is a hybrid sort between a fixed and variable income security. It is an equity security with an intermediate claim between bondholders and stockholders on a firm’s assets and earnings. In the event of liquidation, preferred stockholders have a claim on available assets before the common stockholders. In addition, preferred stockholders get their stated dividends before common stockholders receive any dividends. Many issues of preferred stock are callable at a stated redemption price.
Preferred stocks are usually perpetual securities having no maturity date, although there are exceptions to the general rule.
The excess amount above each share of stock’s par value paid by the shareholders.
Representing any fund for contingencies, providing a reserve for dividend expected, and a sinking fund to retire stock or debt in the future.
The net earnings after tax that is retained in the business rather than distributed to the shareholders as dividends
Long-term debt carrying a convertible feature. The holders of them have the right to exchange their debt for shares of stock.
Debt security was repayable only from the sale of stock.
The holdings of ownership shares of other business enterprises.
What are the Components of Stockholders Equity?
