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Explain why the sum of the amount of cash paid out in dividends added to the...

Explain why the sum of the amount of cash paid out in dividends added to the amount of cash committed to repurchasing stock (treasury stock) is an indicator of the company’s intentions regarding growth.

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Answer #1

When a company pays out dividend to the shareholders, it is a well indicator that the company has earned sufficient profits and it want to distribute the excess cash to the shareholders.

Similarly, when the comapny purchases its own stock, the intention behind such purchase is to distribute the excess cash to the shareholders, and have concentrated holding on the company among few persons.

The above scenarios are clear indicator that the company is in growth stage and eable to repay to its shareholdeers.

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