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How do companies post losses and still pay dividends?
Date Posted:
7/26/2012 5:01:12 AM
Posted By: moff J Membership Level: Silver Total Points: 485
is because of this that companies pay dividends even when they have posted losses.
A company that has healthy cash balances will give a return to its investors regardless of the kind of results that it has posted. This is because dividends are paid from cash reserves and not from profits/losses.
The reason why businesses pay dividends even when it has posted losses is in order to maintain a regular dividend payout policy. This has the advantages of among other things enhancing a firm's share price on the stock exchange. It ensures that the firm's shares are not deteriorated by the poor results. It also aims at sustaining investor confidence in a company by promising constant returns.
In conclusion, a review of the article tells us that companies have devised numerous ways of protecting and promoting their corporate image and maintaining investor confidence in it. Payment of dividends even in times of poor results is just one of the ways. This goes ahead to tell the investors that the company's operations will continue in the foreseeable future and therefore there should be no cause for alarm. This helps protect and boost a company's share price in the stock exchange which many investors use as a gauge of how well the company is doing.
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