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Educational Development Corporation Message Board

  • ubah_consultant ubah_consultant Oct 15, 2012 5:37 PM Flag

    Please help me understand dividend

    I just read latest quarterly earnings. As I understand it, earnings were $219,000. before taxes. The quarterly dividend is 12 cents which amounts to $471,600. for 3.93 million shares. How is this possible? Can someone please explain it to me?

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    • I should add that economic earnings can also be less than reported GAAP earnings. And cash flow can also be less than GAAP earnings.

    • A few ways to think about this question: in your household, you spend a lot of money at Christmas time. You withdraw a lot more from your coffers than you make in that period (probably). How is that possible? Because through the course of the year you make enough to offset it. Another possible way to think about it, an opposite scenario: you receive an equal paycheck every month from your employer. Same amount, every month. Fixed. Yet, the employer's profits aren't fixed, and in fact on some periods he might actually lose money. So how is it possible he can pay you the same amount every period? Because over a longer time period he is making enough to do so. Last, an important point: GAAP accounting earnings (Generally accepted accounting principles) does NOT necessarily represent a companies "true" economic earnings. True economic earnings might exceed GAAP earnings. And cash flow might exceed economic earnings as well.

 
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