Paid-in Capital vs Earned Capital
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Why is it important to keep paid-in capital separate from earned capital? As an investor, is paid-in or earned capital more important? Why?As an investor, are basic or diluted earnings per share more important? Why?
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Why is it important to keep paid-in capital separate from earned capital?
Paid in capital is the capital received from investors in exchange for stock when the stock is issued by the company. It is not capital that is generated as a result of the operation of the company but is the excess amount from the par value of the stock that the investors are willing to pay in exchange for stock. Therefore, paid-in capital represents the investments made by the shareholders. Earned Capital is the capital accumulated through the profitable operation of a company. It is important for the company to separate paid-in capital from earned capital because the investor will be able to see how well the company can generate capital that results from the ...
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