How to Figure Out the Additional Investment & Dividend in Accounting
Original post by Ryan Menezes of Demand Media
When a company has a target level of equity, they must reach their target by seeking additional investment. If you know a company's current level of equity, you can calculate the additional investment by finding the difference between it and the target. If you don't, you can calculate the current equity level from individual investors' equity and the dividends they receive. The dividends are the product of the number of shares that a stockholder owns, and the earnings-per-share, as specified on the company's earnings statement.
Multiply the earnings-per-share that a company has made by the number of shares that an investor owns. For example, if a company earns $0.90 per share, and an investor owns 20 shares, multiply $0.90 by 20, giving the investor dividends of $18.
Divide the value of these dividends by the amount of equity that the investor has contributed to the company. For example, if the investor has contributed $210 of equity, dividing $18 by $210 gives 0.0857.
Divide the company's net income for the period by this ratio. For example, if the company has a net income of $7,500, divide $7,500 by 0.0857, giving $87,514.59. This is the value of the company's current equity holdings.
Subtract the company's current equity level from its target equity level. For example, if the company wants $100,000 in equity, subtract $87,514.58 from $100,000, to get $12,485.41. This is the additional investment that the company must seek.
- "Financial and Managerial Accounting"; Carl S. Warren et. al.; 2008
- Jacksonville State University: Dividend Transactions
- "Cornerstones of Financial & Managerial Accounting..."; Jay S. Rich et. al.; 2009
- "Principles of Accounting"; Belverd E. Needles; 2010
About the Author
Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.
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