Dividend is amount of profits paid by a company to its shareholders.
Why is dividend important?
When a company pays dividend it is a signal to the shareholders that the cash situation of the company is good and it is not only making paper profits but also cash profits.
------------------------------------------------
See there is a difference between both of them..
If a company is making profits but all its profits are with debtors then company is not in good shape or not functioning well....The collection cycle of the company is not proper and it may face cash crunches in future. Cash is required for daily operations and if company is facing problem then it may have to borrow funds for working capital which is not a good sign.
Second situation is company making book profits as well as cash profits...In this case the financial situation of the company is good...The company is making sales as well as able to collect the money from Debtors
-------------------------------------------------
Now when a company pays dividend it gives a signal to the investors that the company is not facing any cash problem and the company is doing well
In next post we are going to discuss the two important ratios
Dividend payout and dividend yield....
Written by - #Yash
Edited by - #Raj
#ow
0 comments:
Post a Comment