ACCT410 Unit 4 DB - Sales Financing and Cash Flow

This ratio computes a companys equity return

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this ratio computes a company’s equity return profitability by revealing how the company creates profit with the invested money from shareholders. The way that Lucy is listing the loan from her uncle will show this ratio, which is incorrect. The debt-to-equity ratio equals total shareholders’ equity divided into total liabilities (Elliott, et al, p. 408). Debt-to-equity ratio is defined as a way that a company can compute their advantage by the equity of the stockholders total liabilities. It signifies what relative equity amount and debt is being used to fund the company’s assets. These ratios show how well the business is doing and are essential to lenders. Unethical? The way that Lucy wants to show the loan now, it would not be considered ethical and would be against the GAAP. If she were to take her uncle on as a partner and be able to repay him the $50,000 with interest, it would then be considered ethical and she could list it as she going to initially. As stated above, if Lucy was to list the loan as a contributed capital, it means that there is a shareholders’ equity entry on the balance sheet for the company and gives a summarization of the stocks total value that have been directly purchased by the shareholders
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from the company. Contributed capital is a business’ resource sources, i.e. additional paid-in
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