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Does paying dividends on equity shares increase gearing?
Yes it will reduce the gearing because the total equity will be lower. However it is unlikely to reduce the gearing substantially (unless the dividends were very big).
I think when total equity reduces, it will increase the gearing (since the denominator reduces), isn’t it? Or do I miss something that can explain?
Ooh sorry – I meant to agree with you by saying that it would increase the gearing. I don’t know why on earth I wrote reduce.
Thank you so much! 😀
You are welcome 🙂