Answer to Question #237753 in Management for PINKY

Question

Clarify some of the reasons that the CFO might choose to explain the drop in shareholder equity to their shareholders.

Answer 1

A chief financial officer can explain the drop in shareholder equity by illustrating the cause of the decline. Some of the common reasons for this phenomenon that the CFO might consider include large dividend payments leading to depletion of retaining earnings. Another reason is accumulated losses in a long time and liabilities such as payments for the losses. In this case, liabilities become more than the organization’s assets, thus leading to a drop in shareholder equity because shareholders’ equity is the sum of assets and liabilities.