Uncovering A Share's 'real Value'

Uncovering A Share's 'real Value'

Uncovering a share's 'real value'

In the previous webpage we examined the profit and loss account d saw how after deduction of tax a company is left with the

net profits. As the distribution to the preference shareholders is a fixed amount, which is paid out of the profits as a prior charge, the board examines the net profits available after the preference dividend has been accowited for. This balance of net profits represents the earnings of the ordinary shares, or 'equity earnings'. The company's board then decides what part of these net profits will be recommended for retention in the reserves, and what part for distribution to ordinary shareholders. Thus:

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