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
