“Retained earnings are the net income retained in the corporation” (Kimmel et al., 2009, p. 13). When a business makes profit it can decide to retain the earnings for business expansion or pay the owners back as dividend. The Retained Earnings statement shows the total Income, less the dividend paid to owners to determine the retained Earnings. The investors look at this statement to see usual dividend payment practice of the business. Some investors like companies paying the owners and some investors do not like these. This is because the dividend paid will bring down the company’s ability to pay the creditors.…
C. Companies pay dividends on their common or ordinary shares because of numerous reasons. Generally, dividend is viewed as interest resulted from shareholders’ investment. When companies stay profitable and have stable earning, dividends can send a strong message to the market about the outstanding performance of management to attract more investors. However, when it is determined that the cash would yield more profits by reinvestment, paying out dividends may not be favorable.…
In reality, most companies, including Costco, frequently experience changes in their return on equity, and distribute some portion of earnings to investors.…
Earnings & Profit is the ability of a corporation to pay a dividend. Similar to the accounting concept of retained earnings. Both are measures of the firm’s accumulated capital (E&P includes both the accumulated E&P of the corporation since February 28, 1913, and the current year’s E&P).…
cash flow can be used to undertake acquisitions, pay additional dividends, pay down debt, or buy back stock.…
| | |retained earnings and thus additional equity investment by stockholders in Year 8. |…
Investors have to keep a close eye on many different parts of their investments. First, keeping the paid-in capital separate from the capital earned. Paid-in capital is the total amount of stock purchased by the shareholders. Where earned capital is the profit earned from operations. Second, the investor needs to keep track of the capital earned this creates dividends to be paid in the long run. Paid-in capital does not apply to the investor just the firm in which the stock is held. Finally, diluted earnings per a share are a better representation of the actual profit the investor can earn. The earnings per a share are firm’s general earnings without taking in to account the convertibles, warrants and stock options.…
Midland estimated its intrinsic value by applying DCF method. Share repurchase were processed whenever intrinsic value higher the prevailing stock price.…
The two primary reporting alternatives Alcoa has in accounting for the repurchase of the shares include converting to treasury stock or formally retiring stock (Spiceland, Sepe, Nelson & Thomas, 2016). With either choice, the total shareholders’ equity would be equivalent: the cash and shareholders’ equity would decrease since cash is paid to repurchase the stock. By changing it to treasury stock, the cost is reported as a decrease in total shareholders’ equity. The purchase of the treasury stock would be accounted for by debiting the treasury stock account and crediting cash for the cost. Per Merrit (n.d.), the treasury stock would be on a separate line as an unallocated reduction in the shareholders' equity. This treasury stock is issued, but they are not part of common stock outstanding. Per Carter (n.d.), the balances are reinstated to the original amount in the common stock and paid-in capital—excess of par accounts if the stock is formally retired. If there are any increase in sales or repurchases of the shares, then it will be reflected in the paid-in capital share repurchase account. However, if there is a net decrease in the sales or repurchases, then it will be shown as a decrease in retained earnings. If Alcoa resells the treasury stock for an amount greater than the cost, they should debit cash for the sales price, credit treasury stock…
A share repurchase is a company buying back its own stocks from the market. It is basically a company using its…
retained earnings. On the other hand, year 2011 surpass the DPS in 2009, which shows that…
When firm repurchases stock, it will reduce amount of shareholder. Therefore it will reduce common equity proportion in B/S.…
Investors favor dividends because it will reduce uncertainty with their investments and make them confident in the company’s return. Another factor is financial needs; in FPL’s case the company should cut back on dividends in order to increase profit. Companies need to be aware of the financial needs of the company whether it means to offer dividends or reinvest money back into company for growth. Finally there is liquidity factor should be considered to see if the company is able to payout the actual cash dividends. Sometimes companies have good earnings but are unable to carry out the cash to account for the…
The growth rate will be lower if the earnings are used to buy back shares…
Management is being forced to reorganize the capital structure by raising the debt and using it to pay the dividends or buy back the shares because Blanka Dobrynin is trying to buy a large stake in the company. The buyback of shares would increase the EPS for the firm as a natural consequence of reduction in number of shares outstanding. The increase in EPS…