In this paper I will be discussing why it is important to keep paid in capital separate from earned capital in any organization. I will explain what is more important to investors paid in capital or earned capital. Also, I will talk about what is important to investors, basic or diluted earnings per share. All the things that I stated above are found on the financial statements which are important in all organizations.
In any corporation both paid in capital and earned capital as known for retained earnings are important to investors and shareholders. These are two forms of equity that you will find on a balance sheet in the shareholder’s equity section. It is important to keep the two separate because they both provide two different totals for the company on the balance sheet. Paid in capital is how much the investors and shareholders have invested in the company. While earned capital is how much the company has profit from the operations or net income that is undistributed dividends. Depending on what is being taken into consideration for the investors and shareholders the separation lets both parties know how the organization is operating and if there are any gains or losses. The importance of having paid in capital and earned capital separated is because they have different amounts at the end of the period and they are recorded differently for financial purposes. The reason for the separation because if you combine the total of the two it will give you a higher total of the company and not how much it actual has profit in the period. In reality it actually distinguishes the organizations profits and shareholders and investments.
Investors like to know what type of organization they are investing into and if it is worth investing. Earned capital is more important to investors because it shows how much the organization generates its profits. Investors want to make sure that if they invest in any organization it will be a profit or gain in the long run or will