Liquidating dividends effect on retained earnings

Note: some accountants use a separate Dividends account, (analogous to the Drawings account for a proprietorship), and later close the Dividends account to Retained Earnings.The retained earnings of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period.

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They assume that the stock market […] " The top executives of the large, mature, publicly held companies hold the conventional view when they stop to think of the equity owners’ welfare.

They assume that the stock market automatically penalizes any corporation that invests its resources poorly.

So companies investing well grow, enriching themselves and shareholders alike, and ensure competitiveness; companies investing poorly shrink, resulting, perhaps, in the replacement of management.

In short, stock market performance and the company’s financial performance are inexorably linked. What if no correlation exists between a company’s profitability and the short-term—and even long-term—performance of its shares?

The top executives of the large, mature, publicly held companies hold the conventional view when they stop to think of the equity owners’ welfare.

They assume that they’re using their shareholders’ resources efficiently if the company’s performance—especially ROE and earnings per share—is good and if the shareholders don’t rebel.

What would be the point of retaining earnings and reinvesting them if return on equity is no measure of the wealth returned by the corporation to its equity holders?

A close examination of 50 of the largest mature, publicly held U. companies for the 1970–1984 period (with adjustments to account for such variables as market fluctuation) shows just that.

Many companies’ profits simply never found their way to shareholders, either as dividends or as higher stock value over time.

Chapter 14 is largely a continuation of Chapter 13, with a focus on dividends and retained earnings.

For no-par preferred stock, the dividend is a specific dollar amount per share per year, such as USD 4.40.

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