Composition of Shareholders’ Equity
The following schedule summarizes the components of shareholders’ equity reported in the 1997 balance sheets of Wendy’s and Reebok:
|
Wendy’s |
Reebok |
|
|
(Dollars in millions) |
||
|
Shareholders’ equity: |
||
|
Invested capital |
$1 |
$365 |
|
Retained earnings |
1,145 |
839 |
|
Other |
(639) |
(20) |
|
Total shareholders’ equity |
$ 507 |
$1,184 |
Required
a. Which firm has obtained the larger amount of capital through sale of stock to investors?
b. Which firm has obtained the larger amount of capital through reinvestment of earnings?
c. Explain why Wendy’s reports a much higher balance in retained earnings at the end of 1997.
d. Suppose that Reebok earns $250 and pays dividends of $95 during 1998. What would be the firm’s ending balance in retained earnings? (All dollars are in millions.)