A dividend represents a portion of a company's earnings. Each year, the company's board of directors decides whether to pay dividends to shareholders and if so, how much. Dividends are typically referred to as a dollars-per-share figure. Established companies often pay dividends in cash. Once a dividend is declared by the board of directors, the amount is deducted on the balance sheet from the company's retained earnings.
1. Look for the retained earnings figure on the previous year and current year balance sheet. It is listed in the shareholders' equity section.
2. Search for the year-end net earnings figure on the current year's balance sheet.
3. Add the previous year's retained earnings figure to the current year's net earnings. For example, if last year's retained earnings amounted to $200,000 and this year's net earnings came to $50,000, adding the two figures would result in a figure of $250,000.
4. Deduct the current year retained earnings figure from the result of that calculation. If this year's retained earnings figure is $220,000, the calculation is $250,000 minus $200,000, which equals $30,000 in dividends paid.
Items you will need
- Balance sheets from last year and current year
- Income statement for current year