Affects of declaring dividends and liquidating
Thus, if a person owns 100 shares and the cash dividend is 50 cents per share, the holder of the stock will be paid .Dividends paid are not classified as an expense, but rather a deduction of retained earnings.Hence, a more liquidity-driven way to determine the dividend’s safety is to replace earnings by free cash flow.
When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to shareholders.
Distribution to shareholders may be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.
This is an important date for any company that has many stockholders, including those that trade on exchanges, to enable reconciliation of who is entitled to be paid the dividend.
Existing holders of the stock will receive the dividend even if they sell the stock on or after that date, whereas anyone who bought the stock will not receive the dividend.
Retained earnings (profits that have not been distributed as dividends) are shown in the shareholders' equity section on the company's balance sheet – the same as its issued share capital.