Retained Profit per ShareAnalyzing Firms
Retained Profit per Share is the portions of Earnings per Share that is kept as Retained Earnings. You can see the amount of the company’s earnings per share that is applied to self-financing by taking the Retained Earnings a company earns and dividing it on a per share basis. You can directly compare Retained Earnings per Share with Dividends per Share. The desire for either depends on your preference for return types. Would you rather have your returns delivered directly through liquid dividends and available for diversification in other investments? Or would you prefer they were retained within the firm to grow the holding’s value over time?
If you desire to gain wealth from the increases of a firm’s value over time, you will prefer to see a large Retained Profit per Share and low Dividends per Share. This indicates the firm is more interested in retaining and building value over time than paying out dividends to the shareholders. The priority of growing the business supersedes the priority of directly delivering income to you.
If you are using dividends for an income-based investment structure you will prefer a low Retained Profit per Share and a high Dividend per Share. This will be desired as long as the firm retains financial stability since you are not attempting to gain profit from increases in the long-term value of the firm.
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