Answer to Question #236437 in Management for Yoza

Question

The reasons that the CFO might choose to explain the drop in sharehloders equity to their shareholders

Answer 1

When a firm issues a dividend, it pays out earnings to the stockholders using its assets. This causes a decrease in assets, meaning that the stockholders' equity decreases. Also, if a firm has net losses instead of net revenues, this will also decrease the firm's assets and cause the stockholders' equity to decrease.

Companies calculate shareholders' equity by subtracting the total liabilities from the total assets. Reasons for a company's negative shareholders' equity include accumulated losses over time, large dividend payments that have depleted retained earnings, and excessive debt incurred to cover accumulated losses.