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Date Posted: 11:17:17 09/08/02 Sun
Author: Dr. D.
Subject: Re: Changes in RE ( Chapter 2) / M 4:30
In reply to: Alex 's message, "Changes in RE ( Chapter 2) / M 4:30" on 21:26:35 09/07/02 Sat

yes, it is possible that the change in RE chopund be negative. All it would mean is that dividends exceeded net income. While that seems strange, it's not uncommon in the real world. Companies are reluctant to cut dividends. However, profits can fluctuate (and often do) significantly from year to year. So, it's possible that a company could have a "bad" year from an accounting standpoint (i.e. low profits). However, they might keep heir dividend constant. That's one way that management can credibly tell the stockholders that the low profits for the year are transitory and not representative of future performance.

Remember also, that profits (i.e. Net Income) are not cash. So, a company with low profits but sufficient cash flow could easily pay a dividend that exceeds their Net Income.

Hope this helps.


>I would like to know when calculating divedends paid =
>NI (change in RE)if the changes in RE could be a
>negative number, if yes what would that mean?
>
>thanks

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