Earnings questions urgent

Yes, no, no, no.

You are getting a bit confused between earnings and total shareholder return.

Earnings are the profit a company makes which is available to shareholders. However, it doesn’t mean the company will pay that amount out to the shareholders in dividends. It is just an indicator of the level of funds which may be available. The company may choose to reinvest most of those funds instead. So earnings may have little to do with the amount the shareholders actually receive

The amount the shareholder actually receives is total shareholder return. This is made up of the movement in the share price (closing share price minus opening share price) plus the dividend. Generally this is expressed as a percentage, so (closing share price – opening share price + dividend)/opening share price -1.

In theory a company with higher earnings will be able to pay out more in dividends or will have more money to invest in positive NPV projects leading to an increase in share price. But in practice many other factors affect share prices and dividend payments.

So earnings and total shareholder return are closely linked but they are not the same thing.

Why on earth are you asking the same question in both the F9 and P4 forums??

Why don’t you watch the free lectures?