Owner's Equity

Owner's Equity
Penny Martin
July 13, 2015
Scott Ronk

Owner's Equity
The one topic that owners of a business like to discuss and enjoys watching it increase is Owner’s Equity.   The dessert of the accounting world, it is one of the most important components of financial reporting.   Owning a business that is clear of long-term debt not only reflects a healthy business, the owner is in the positon to realize gain and relish the knowledge that they were successful in their field.   Owner’s Equity is the measure used to gauge the success of a business.
Why it is important to keep paid in capital separate from earned capital?   Paid in Capital and earned capital is found in the shareholders section of the balance sheet, and are two forms of equity capital.   Paid in capital, sometimes referred as contributed capital, comes into play when investors provide the capital needed to start a business, by purchasing the first of the issued shares.   Earned Capital is the income earned by the company from the start of business to the present.   It is important to keep the two separate, because it makes tracking the company’s earnings and any dividends distributed.   It also concerns issues related to legal capital and capital exceeding the face value of shares.
As an Investor, is paid in capital or earned capital more important?   Paid in capital is when investors purchase shares in a company and they become owners in the business by acquiring equity in it.   Investors receive stocks or shares in the company in return for their investment, and will eventually receive dividends.   Earned capital comes from the net income, and companies usually do not distribute it through dividends, preferring to add it to the company’s equity.   Earned capital is more important to the investor, because it tells them whether a company is profitable or not.   One would not want to invest in a company that is doing poorly in their selected market.
As an investor, are basic or diluted earnings...