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We predict that book to market strategies work because the retained earnings component of the book value of equity includes the accumulation and hence the averaging of past earnings.
Book value of equity retained earnings. Book value of equity consists of two economically different components. Mathematically it is represented as book value of equity formula owner s contribution treasury shares retained earnings accumulated other incomes. Retained earnings are part of equity on the balance sheet and represent the portion of the business s profits that are not distributed as dividends to shareholders but instead are reserved for reinvestment.
Retained earnings and contributed capital. The book value of a corporation having only one class of stock common stock is equal to the total amount of stockholders equity. The concepts of owner s equity and retained earnings are used to represent the ownership of a business and can relate to different forms of businesses.
Share capital and retained earnings make up the total book value of the company. If common stock is the only class of stock issued by the corporation the book value per share of common stock is 39. In a balance sheet along with share capital another important written value is retained earnings.
We predict that book to market strategies work because the retained earnings component of the book value of equity includes the accumulation and hence the averaging of past earnings. In the above financial statement book value of equity is us 134 05 billion as highlighted. Book value of equity consists of two economically different components.
The retained earnings formula represents all accumulated net income netted by all dividends paid to shareholders. We propose that the information contained in the book value of equity di ers substantially across its components. Book value is the accounting value of the company s assets less all claims senior to common equity such as the company s liabilities.
Book value us 375 32 billion us 241 27 billion us 134 05 billion. It is calculated as follows. The ratio of the book value of equity to the market value of equity is a common measure of value.
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