• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Ch 13 page 7

C

Carmen

Keen member
Hi,

I'm not quite sure what the paragraph below means? How does the earnings of unquoted companies impact those for quoted ones?

"If the earnings of the unquoted companies grow more quickly than those of quoted companies, then the share of profits attributable to quoted companies must decline."

Thanks for any help in advance!
 
Hi Carmen
By holding equity shares in a quoted company, you are entitled to a proportion of the profits made by companies in an economy. All else being equal, or on average, a larger company will generate more profits. This means that if unquoted companies grow faster than quoted companies, your entitlement to a share of profits from all companies in an economy will shrink.
As the notes say, this decrease in your proportionate holding will also happen as new companies come into existence and start generating profit. In a similar way, if the companies for which you hold shares issue new shares and you don't buy any, the proportion of profits from those companies you'll be entitled to will fall.
These are all arguments for why the dividend growth on a single share for an average company could (quoted companies not growing as fast as unquoted) or will (new companies and/or share issues) be less than the growth in GDP, even if the share of GDP taken by capital remains constant.
Hopefully this helps.
James
 
You must log in or register to reply here.
Back
Top