week 6 discussion
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Week 6 Discussion Question:
Research and then discuss the two types of equity found on the balance sheet that contribute to the total stockholder’s equity for the corporation. With respect to rewarding stockholder investment, which of these components of equity is most important? Explain why.
Using the 2017 Annual Report information provided for Amazon and Target, review the total stockholder’s equity for both companies. What types of conclusions can you draw based on the information provided? Are operations playing a key role in increasing value for the stockholders of the company? Please explain your answers.
Total stockholders’ equity is the business’s total assets owned by stockholders that are represented on the balance sheet; it is calculated by deducting total liabilities from total assets. According to the textbook, the two types of equity found on the balance sheet that contribute to total stockholders’ equity are common stock and retained earnings. Common stocks refer to the ownership value of the business that comes from outside sources, where money is brought in from investors into the business by selling stocks. On the other hand, retained earnings are kept by industries from payments made that are retained, and stockholders then share business profits. Regarding the two, retained earnings hold more importance because it is the amount of
income a business has that is then used for reinvestment and paying off debts.
After reviewing Amazon’s 2017 annual report, it is seen that Amazon did very well as they ended the year with a net of $27.7 billion for total stockholders’ equity, up from $19.28 billion the previous year, which shows a 43.68 % change. I believe that operation did have a crucial role in increasing the value of stockholders’ equity in 2017 for Amazon and could be primarily due to Amazon’s acquisition of Whole Foods, which also increased sales. Sales also increased due to Amazon's efforts to reduce prices for their customers, impacting various factors in their operations, such as increasing stock inventory, expanding inventory selection, and shipping offers. Their focus on operations increased retained earnings, which more than doubled from $4.91 billion to $8.63 billion. The growth in sales and stockholders’ equity leaves Amazon in a good financial position where they have continued to do well.
Target’s 2017 annual report also managed to increase stockholders’ equity from the previous year by 6.9
%, from $10.95 billion to $11.70 billion. Although compared to Amazon, the increase was smaller compared to Amazon, they still managed to grow. Based on the report, this minimal growth could be attributed to Target liquidating their Canadian subsidiaries (their operations in Canada).
Target common stock also fell to $46; the previous year, it was $50. Retained earnings decreased from 5.88 billion in 2017 to 8.18 billion and were then used to repurchase $1.02 billion worth of shares. However, Target has continued to perform well.In conclusion, it is clear that both Target and Amazon continue to perform well into 2020.
References
Amazon 2017 Annual Report. (n.d.). Retrieved February 15, 2023, from https://egcc.instructure.com/courses/35537/pages/amazon-2017-annual-report?
module_item_id=3247644
Target 2017 Annual Report. (n.d.). Retrieved February 15, 2023, from https://egcc.instructure.com/courses/35537/pages/target-2017-annual-report?
module_item_id=3247641
Equity accounts. Corporate Finance Institute. (2022, December 5). Retrieved February 15, 2023, from https://corporatefinanceinstitute.com/resources/accounting/types-of-equity-accounts/
Equity accounts. Corporate Finance Institute. (2022, December 5). Retrieved February 15, 2023, from https://corporatefinanceinstitute.com/resources/accounting/types-of-equity-accounts/
Chart Industries - stock price history: GTLS. Macrotrends. (n.d.). Retrieved February 15, 2023, from https://www.macrotrends.net/stocks/charts/GTLS/chart-industries/stock-price-history
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