Introduction
When it comes to financial reporting, there are several key metrics that provide insights into a company’s performance. One important metric is net income, which measures the profitability of a company. However, to fully understand the profitability of a company, it is crucial to consider the relationship between net income and average stockholders’ equity. This article will explore which of the following reports net income relative to average stockholders’ equity in dollars.
Net Income and Average Stockholders’ Equity
Net income is the amount of money a company earns after deducting all expenses from its total revenue. It is a measure of profitability and indicates how well a company is generating profits from its operations. On the other hand, average stockholders’ equity represents the average value of the shareholders’ ownership in the company over a specific period.
To analyze the relationship between net income and average stockholders’ equity, we need to consider the financial statements of a company. The two financial statements that report these figures are the income statement and the statement of stockholders’ equity.
Income Statement
The income statement, also known as the profit and loss statement, provides a summary of a company’s revenues, expenses, and net income over a specific period. It reports the financial performance of a company by showing the revenues generated and the expenses incurred during that period.
While the income statement reports the net income, it does not directly provide information on average stockholders’ equity. Instead, it focuses on the revenues and expenses that contribute to the net income figure. Therefore, the income statement alone does not report net income relative to average stockholders’ equity in dollars.
Statement of Stockholders’ Equity
The statement of stockholders’ equity, also known as the statement of changes in equity, provides information about the changes in a company’s stockholders’ equity over a specific period. It shows the beginning balance of stockholders’ equity, any additional investments or withdrawals, net income or loss, and any dividends or distributions made to shareholders.
This statement includes the net income figure reported in the income statement. However, it also considers other factors such as additional investments, withdrawals, and dividends. While the statement of stockholders’ equity provides information on net income, it does not directly report net income relative to average stockholders’ equity in dollars.
Additional Reporting
To find a report that specifically presents net income relative to average stockholders’ equity in dollars, we need to turn to the financial analysis section of a company’s annual report or 10-K filing. In this section, companies often provide additional financial ratios and metrics to help investors and analysts assess their financial performance.
One such ratio that provides the desired information is the Return on Equity (ROE). ROE is calculated by dividing net income by average stockholders’ equity. This ratio measures the profitability of a company relative to the amount of equity invested by shareholders.
By analyzing the ROE, investors can gain insights into how effectively a company is utilizing its equity to generate profits. A higher ROE indicates that a company is generating more income relative to the equity invested, which is generally considered favorable.
Conclusion
In conclusion, the report that provides net income relative to average stockholders’ equity in dollars is not directly available in the income statement or the statement of stockholders’ equity. However, this information can be derived by calculating the Return on Equity (ROE) ratio, which is often included in the financial analysis section of a company’s annual report or 10-K filing. ROE helps investors assess the profitability of a company in relation to the equity invested by shareholders.
References
– Investopedia: www.investopedia.com
– SEC EDGAR: www.sec.gov/edgar
