The Effect of Share Issuance on Retained Earnings

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Share issuance can effect retained earnings for a business in a number of different interesting ways. Learn about the effect of share issuance on retained earnings with help from a business and finance professional in this free video clip.

Part of the Video Series: Business Tips & Insurance Info
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Video Transcript

Hi, I'm Ernie Bray, and I'm going to talk with you about how does share issuance affect retained earnings. Now, if you're a business out there or you're a company, here's how it works. If you have stockholders and shareholders, you either pay out dividends to them or you have retained earnings, if a dividend is not declared. Now, if you issue more shares, more shares out there to more people. If you declare a dividend, the cost is higher, because you actually have to pay out more dividends. Thus, you're not able to retain more earnings into the business. So, that is the major effect of issuing more shares in a company. There's slower growth and slower retaining of the earnings, thus having less capital on hand. I'm Ernie Bray, and thanks for listening.

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