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A company has a large balance in retained earnings. Does that mean that its dividends to stockholders will be increasing?

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Question added by sameer parkar , Senior Accountant , Al Andalus Trading Company
Date Posted: 2014/03/24
Pacifico Rebollos
by Pacifico Rebollos , Accountant , Kory Tyres LLC

Not necessarily. As long as there is no declaration to pay dividends and approved by the board, no liability on the part of the company. Hence, no increase whatsoever to stockholders.

KALPANA DAHIYA
by KALPANA DAHIYA , Financial Analyst-Financial Planning & Business Control , RJ GROUP OF COMPANIES

iT DEPENDS UPON THE MANAGEMENT.

Whether they want to give away as dividends for keep it for contigencies.

Often it is kept as a reserve.

Ayas Al Gul MBA CPA
by Ayas Al Gul MBA CPA , Regional Finance Director , Fujitsu Technology Solutions FZ LLC

Decision depends on shareholders , in private entities there are no desires to give benefits to shareholders , this will increase company equity and enhance credibility of an entity in the market , specially if there are plans to go public or commence into joint operations or ventures.

in Listed companies they prefer to give a percentage from audited retained earnings to shareholders in cash or bonus shares , to increase market stock value and attract cash inflows from new joining public investors. 

steve khawaja
by steve khawaja , Director of Finance, MENA region , DAI Global

Although it looks good for a specific company to have a high amount of retained earnings, it does not by default mean that the company will distribute dividends for a variety of reasons. One factor is the management decision to keep the earnings in investing in other opportunities. Another factor is cash availability as having earnings does not necessarily mean that the company can distribute it to stockholders.

Sohaib Ahmed Siddiqui
by Sohaib Ahmed Siddiqui , Systems Financial Auditor , SENDAN International Company Limited

This doesn't mean payout but surely it means shareholder's wealth accumulation.

Salim Waghoo
by Salim Waghoo , Senior Accountant/Financial Controller , Global Hardware & Tools LLC

Small portion of retained  earning to be passed to shareholders in term of dividend which will not affect company equity and keep shareholders happy and motivate them to invest more in company

Akbar Rana
by Akbar Rana , Portfolio Risk Manager, Commercial Banking , Standard Chartered Bank

A company that retains most of its profits is said to be in growth stage which is why they mostly provide return to shareholders through appreciation of stock price by taking on high revenue generating new projects. So if the company dedicates a large portion of its earnings towards retention, it usually is the indication that dividends would be lower and not increasing. Given the information, it is difficult to assess the outcome.

Yusuf Dalal
by Yusuf Dalal , General Accountant. , Gmamco Contracting LLC

It is subjective and totally a discretion of the management , however in general the retained earning are kept by the management to take care of the future plan/business expansion plans or acquisition of the company etc..  and  or for any unforeseen contigencies.

 

Fahim Ayaz
by Fahim Ayaz , Finance Manager , AlRashed Cement Company

It depends on the requirements of the company whether the company wants to utilize its retained earnings and use them as a source of Finance or not. It is totally a subjective decision and it never implies that the dividends to the shareholders will be increasing as the retained earnings increase over time.

Mainly, it is a topic of Financial Management and as it is said, "Financial management is not a science, it is an Art". - Source unknown.So it depends on the choice of shareholders whether they pay dividends from the increased retained earnings or use them as a mode of finance.

not necessary as long as the organization has a consistent dividend policy. some organizations have intention for growth in the market rather to be a valued stock since they overlook growth in their future ROE (return on equity).

Rajesh Pandey
by Rajesh Pandey , Finance Head , Travel Point LLC & Travel City LLC (Group)

No since high retained ernings are accumulated balances of profits,and its purly management decision to pay dividend out of that which may differ according to companies financial policies. 

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