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Why do equity holders care more about Return on Equity rather than Return on Asset?
Also look up leverage. I'll explain: Suppose Sharp Elbows Corporation owns Funky Cribs apartment complex that cost $5 million, and they owe $4 million to First National Bank of Greed, and they pay FNBG 6% annual interest on the loan.
Sharp Elbows Corp. has $1 million in equity.
Suppose that Sharp Elbows collects a Million Dollars in Rent from Funky Cribs.
Half of that rent goes for the expense of operating the apartments, paying for repairs, lawn mowing, snow removal, and security to evict the meth addicts and crack heads.
Sharp Elbows Gross Profit is $500,000 out of which they pay FNBG $300,000 in interest. Sharp Elbows Corp. owners profit is $200,000 which is a 20% return on its equity of one million.
If Sharp had not used leverage, but had put up the full $5 million to buy Funky Cribs they would have not paid interest, kept half a mill, but they would only have made 10% on their money.
If Sharp has $5 million to invest this way, they can make twice as much by leveraging five complexes like Funky Cribs, than if they simply paid cash for just the one funky apartment complex.
What else can I help you with?
Cost of equity using CAMP?
Cost of equity refers to the rate of return that shareholders expect in return for their investment and as compensation for the risk taken by them in investing into that company. So, from the shareholders' point of view, this expected rate of return (cost of equity) would be the opportunity cost of equity, i.e. the rate of return forgone by investing in the company rather than considering alternative investment options. Cost of equity is determined through various different models such as the Capital Asset Pricing Model (CAPM), Gordon model and many others. Here is more information and calculator of cost of equity with formulas and examples https://trignosource.com/Cost%20of%20equity.html
What home equity release schemes does the Bank of America offer?
Currently the Bank of America doesn't offer home equity release schemes, but rather home equity loans. When taking out a home equity loan, one must be conscious about making the payments on time or risk a foreclosure on the home.
How easy is it to get home equity loans with bad credit?
You can get approved for a home equity loan with bad credit. The equity that is built up in your home, (meaning the home is worth more than you owe on it)the equity becomes your credit, however there is a price for everything in todays society. The interest that you may be approved at is likely to be substantially higher with bad credit than rather if you had good credit.
What does Contrary to the principles of equity mean?
"Contrary to the principles of equity" refers to actions, decisions, or policies that oppose the fundamental ideals of fairness, justice, and moral rightness that equity embodies. Equity seeks to address imbalances and promote fair treatment for all individuals, especially those disadvantaged by systemic inequalities. When something is described as contrary to these principles, it suggests that it perpetuates injustice or discrimination rather than fostering equality and fairness.
What exactly is equity line of credit?
Equity line of credit is a form of finance whereby you can use the equity you have in your home or other compatible loan to serve as collateral for a revolving line of credit. In most circumstances this is used for big-ticket purchases or renovations rather than day-to day expenses, for which purposes a standard credit card is probably more suitable.
Cost of equity using CAMP?
Cost of equity refers to the rate of return that shareholders expect in return for their investment and as compensation for the risk taken by them in investing into that company. So, from the shareholders' point of view, this expected rate of return (cost of equity) would be the opportunity cost of equity, i.e. the rate of return forgone by investing in the company rather than considering alternative investment options. Cost of equity is determined through various different models such as the Capital Asset Pricing Model (CAPM), Gordon model and many others. Here is more information and calculator of cost of equity with formulas and examples https://trignosource.com/Cost%20of%20equity.html
What home equity release schemes does the Bank of America offer?
Currently the Bank of America doesn't offer home equity release schemes, but rather home equity loans. When taking out a home equity loan, one must be conscious about making the payments on time or risk a foreclosure on the home.
What accounts affect owners equity?
Owner's equity is affected by several accounts, including capital contributions, retained earnings, and withdrawals or distributions. Capital contributions increase equity when owners invest more money into the business. Retained earnings, which consist of profits that are reinvested rather than distributed, also enhance equity over time. Conversely, withdrawals or distributions reduce owner's equity as they represent money taken out of the business by the owners.
What should the equity be for a small business?
Raising money through equity investors allows you to use your cash to pay business startup expenses rather than large loan payments.
What disclosures should be made in the equity section of the balance sheet rather than in the notes to the financial statements?
define liquidation preferences as disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements
How easy is it to get home equity loans with bad credit?
You can get approved for a home equity loan with bad credit. The equity that is built up in your home, (meaning the home is worth more than you owe on it)the equity becomes your credit, however there is a price for everything in todays society. The interest that you may be approved at is likely to be substantially higher with bad credit than rather if you had good credit.
Is net profit part of owner's equity?
Yes net profit is part of owners equity that's why shown in balance sheet as an addition to capital.
Is expenses an asset equity or liability account?
Expenses are not classified as an asset, equity, or liability account; rather, they are part of the income statement. They represent the costs incurred in the process of generating revenue. When expenses are recognized, they reduce net income, which in turn affects equity but do not appear directly on the balance sheet as assets or liabilities.
What does Contrary to the principles of equity mean?
"Contrary to the principles of equity" refers to actions, decisions, or policies that oppose the fundamental ideals of fairness, justice, and moral rightness that equity embodies. Equity seeks to address imbalances and promote fair treatment for all individuals, especially those disadvantaged by systemic inequalities. When something is described as contrary to these principles, it suggests that it perpetuates injustice or discrimination rather than fostering equality and fairness.
What particular item of operating data appears on both the balance sheet and the statement of owner's equity?
The particular item of operating data that appears on both the balance sheet and the statement of owner's equity is retained earnings. Retained earnings, which represent the cumulative profits that have been reinvested in the business rather than distributed as dividends, are listed in the equity section of the balance sheet and are also calculated on the statement of owner's equity. This reflects the impact of net income and dividends on the overall equity of the business over a specific period.
Are retained earnings considered an asset liability or owners equity?
Retained earnings are considered part of owners' equity. They represent the cumulative amount of net income that a company has retained, rather than distributed as dividends to shareholders. Retained earnings reflect the company's growth and reinvestment into the business, contributing to the overall equity value.
How should you treat retained earnings in the balance sheet?
Retained earnings should be treated as a part of the equity section on the balance sheet. It is typically shown as a separate line item under shareholders' equity. Retained earnings represent the accumulated profits of the company that have been reinvested rather than distributed to shareholders.
