5 ms·
Re-investing the profit is a choice by management that turns company assets into more company assets. It doesn't turn company assets into outbound cashflow to o
by ThrustVectoring 9y ago
Re-investing the profit is a choice by management that turns company assets into more company assets. It doesn't turn company assets into outbound cashflow to owners and investors.
- andrewflnr 9y agoI guess I was overly specific in hopes of eliciting a specific response. Can you just clarify what you were saying where I quoted you before?
- ThrustVectoring 9y agoSure. Might be easier if I use specific companies and people. If Snapchat ends up being wildly profitable, Evan Spiegel can't simply spend those profits, because they belong to Snapchat. If he wants to spend those profits, his choices are to either collect a dividend from the stock he owns, have Snapchat buy back his shares, or sell the right to participate in those future events on the open market. Or with a super simplified analogy: Snapchat is a box with some cash and the operating business inside it. When Snapchat makes money, it means there's more cash in the box. If someone wants to buy the box, they pay shareholders for it, and if there's more cash in the box the buyer is going to pay more for the box. Paying a dividend is taking cash out of the box and handing it to shareholders. The value of the cash plus the rest of the box is the same whether the box gives money to the owners directly (through a dividend) or indirectly (by getting bought for more money). So really, dividends don't matter. If the company decides not to pay a dividend, it turns $X of stock + $Y of dividend into $X + $Y of stock.
- andrewflnr 9y agoThanks, that helps a bit more.