Answer to Question #252194 in Management for Zimvo Ethu

Question

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

Answer 1

 

1.      An increase in liabilities and a decrease in assets causes a drop in shareholder’s equity since the sum of assets and liabilities add up to an increase in shareholder’s equity.

2.      A Drop in shareholders can arise if a firm has net losses instead of net profits.

3.      A decrease in retained earnings can cause a drop in shareholder’s equity when the firm uses it to pay out dividends.