B/S….Balance Sheet
LIABILITY
Financing Side
• Paid Up: $1,000/person
• Total Paid Up: $1,000 *
8 = $8,000
ASSET
Investing Side
• Bank: $8,000
Liability + Owner’s Equity = Asset
Company XYZ
B/S……After Loan
LIABILITY
Financing Side
• Paid Up: $1,000/person
• Total Paid Up: $1,000 *
8 = $8,000
• Loan: $12,000
ASSET
Investing Side
• Bank: $8,000 $20,000
Liability + Owner’s Equity = Asset
Company XYZ
B/S…..After Investment
LIABILITY
Financing Side
• Paid Up: $1,000/person
• Total Paid Up: $1,000 *
8 = $8,000 (Equity Capital)
• Loan: $12,000 (Debt Capital)
ASSET
Investing Side
• Bank: $20,000 $2000
• Land: $18,000
Liability + Owner’s Equity = Asset
Company XYZ
Keep in mind!!!!
• Profit & retained profit belongs to share
holders
• Receivables is assumption of collectability
• Sale is transfer of product and not receipt of
cash
• Equity=Paid-Up Capital + Retained Profit
• Total Capital = Equity Capital + Debt Capital
I/S….Income Statement
Cost = $18,000 Sales =$25,000
What happens when only 60% of sales
amount is received and 40% is pending?
B/S….After receiving 60% payment
LIABILITY
Financing Side
• Paid Up: $1,000/person
• Total Paid Up: $1,000 *
8 = $8,000 (Equity Capital)
• Retained
Profit:$7000(Equity Capital)
• Loan: $12,000 (Debt Capital)
Company XYZ
$15000 from sales and
previous $2000
At The End We Have
Loan + Owner’s Equity = Asset
$12000
$15,000
$27,000
C/S……Cash Flow Statement
Cash From Financing +$20,000
Cash For Investment -$18,000
Cash From Operation -$15,000
Net Cash Flow: -$3,000
ROE (Return on Equity)
Total Capital ($20,000)= Debt Capital ($12,000) + Equity Capital ($8,000)
ROE = Profit/Equity
= 7000/8000
= 87.5%
However, if expenses are considered, profit will be
decreased accordingly. Eg, interest on loan of
14%.
ROE = 5,320/8,000
= 66.5%
Profit after interest of
14% on $12000, $1,680
ROE (Return on Equity)
Total Capital ($20,000)= Debt Capital ($8,000) + Equity Capital ($12,000)
ROE = Profit/Equity
= 7,000/12,000
= 58.3%
However, if expenses are considered, profit will be
decreased accordingly. Eg, interest on loan of
14%.
ROE = 5,880/12,000
= 49%
Profit after interest of 14%
on $8000, $1,120
Conclusion: ROE depends on operations and financing.
Thank you!!