"Retained Earnings" Please respond to the following:
The items contained in the Retained Earnings section of a balance sheet are often complex and confusing. Suggest an improvement for the reporting on this information that will help the users of the statement to have a better understanding of the activity. Provide support for your suggestion.
Evaluate what a cumulative loss in the retained earnings section of a company’s balance sheet might indicate about the financial performance in the future, indicating how this may influence decisions made about the company. Provide support for your answer.
The goal for every business should be to successfully manage their company so that it creates $1 in market value for every $1 it has in retained earnings (Kennon). For example: “Microsoft has retained $18.9 billion in earning over the years. It has over 2.5 times that amount in stockholder equity ($47.29 billion), no debt, and earned over 12.57% on its equity last year. Obviously, the company is using the shareholder’s money very effectively. With a market cap of $314 billion, the software giant has done an amazing job.” (Kennon). I think a company should ensure it has notes like the one above on its financial statements so that it can make the information provided on the retained earnings section more understandable to even a beginner in finance. This is imperative to having understanding that could lead to additional investments in your company in the future.
A cumulative loss represents an effect of changes in the accounting documents. It can be a loss in assets, liabilities or retained earnings on the balance sheet. A loss results when your expenses are more than your revenues in a year. If a…