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Dear John,
I will appreciate if you help me understand about pref. shares and clear my doubt.
As per your lecture on financial ratios, if dividend paid by the company to the pref. share holders is less than their interest rate, then there could be to possiblities for it:
1 – company has eithdr made less profit, or
2- Company is retaining more profit.But, wouldn’t it be unfair & may be even illegal for company to not pay the pred. shareholders and rather retain that money. Because from my understanding, the interest to pref. share holders is a fixed expense ( just like any other interest) & so th company must be obliged to duely pay it on time. Isn’t it?
Also, is operating gearing not a part of syllabus? Because I see it in Notes, but don’t see any lecture on it.
Preference shareholders are paid a fixed dividend – retention has nothing to do with it, and I do not say that in the lectures.
It is ordinary shareholders where the dividend is affected by the level of profits and by the retention rate.
Operating gearing is in the syllabus, which is why it is in my lecture notes.
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