Share
Explore BrainMass

Why is it important to keep paid-in capital separate from earned capital?

A. Why is it important to keep paid-in capital separate from earned capital?
B. As an investor, is paid-in or earned capital more important? Why?
C. As an investor, are basic or diluted earnings per share more important? Why?

Solution Preview

Paid in capital is capital that is brought in by investors in return for stock when the stock is issued by the company. It is the excess amount from the par value of the stock that the investors are willing to pay in exchange for the stock. Therefore, paid-in capital represents the investments made by the shareholders. However, 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 operation of the company.

As an investor, the most important thing the investor will concern is the ability to generate income and profit of ...

Solution Summary

This solution discusses paid in capital, generating income and profit, equity and debt issues for raising capital, and diluted vs basic earnings per share. This solution is 438 words.

$2.19