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Why is dividend policy often directly affects the projection of the retained earnings balance to be...

Why is dividend policy often directly affects the projection of the retained earnings balance to be used on a pro forma statement?

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Answer #2

It is so because dividend payout directly reduces retained earnings to the amount of dividends that have to be paid. Now any projections of retained earning should take into account the impending dividend payments. The dividend policy of a company is usually stable one the company has started paying dividends. This shall be taken into account and any pro forma projections shall reduce the retained earnings to the tune of dividends that are expected to be paid.

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