From the course: Managerial Finance Foundations
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Dividends and share repurchases
From the course: Managerial Finance Foundations
Dividends and share repurchases
- Successful corporations generate surplus cash that they don't need for expansion or to repay bank loans. Who owns that surplus cash? Well, the shareholders do. It is wrong to think of that surplus cash as belonging to the corporation. The corporation is simply the legal ownership structure used by the people who really own the business, the shareholders. Because the corporation doesn't need this surplus cash to proceed with its planned expansion efforts, the cash should be returned to the owners, the shareholders, to use in whatever way they see fit. After all, the surplus cash belongs to the shareholders. There are two ways in which the surplus cash can be returned to the shareholders. The most common way is through the payment of cash dividends. Cash dividends are simply payments of surplus cash to the shareholder owners in proportion to the number of shares they own. For example, in the 12 months that ended June…
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