- This topic has 1 reply, 2 voices, and was last updated 4 years ago by
.
- Posts
Dear Sir,
Just a general query. In context of Financial management, presumably cost of equity represents required rate of return shareholders want when they invest money. My query is how do investors get this return after they have invested? Do they get in form of dividends? If so, aren’t directors responsible for deciding on dividends which depends on profits for the year. I am comfortable with calculations and concepts but I was wondering that when we calculate cost of equity, we assume that investors want certain percentage on their investment but how this cost of equity can be explained in terms of financial reporting after they have invested? regardsAs I do explain in my free lectures, the shareholders get their return in future dividends and although they do not determine the level of dividends each year the lower the dividend the more the retention and expansion and therefore the greater the growth rate of future dividends.
How it is reported in the financial accounts is of no relevance. Shareholders get their return in terms of the future dividends and the future growth in the market value (due to the future growth in dividends).
I do explain all of this in my lectures 🙂
- You must be logged in to reply to this topic.