Retained Earnings and Stock Dividend Distributions

Stockholders often look at trends in a company’s retained earnings to help them decide whether to invest. Retained earnings can be a good indicator of how healthy a company will be in the future. Therefore, a company might be motivated to make these retained earnings appear as high as possible.
For this week’s Discussion, look at the retained earnings of the companies that you selected in Week 1. How attractive are the retained earnings to investors? Can the company improve the appearance of these earnings and still comply with GAAP and ethical standards?
With these thoughts in mind:
Write at least 200 words answering the following questions:

  1. How might the companies you selected in Week 1 (Microsoft and General Motors – see below prior week posting ) attract more investors by improving the appearance of these trends, while still complying with GAAP and ethical standards? In your opinion, what are the key components of retained earnings that should be addressed? Why?
  2. Identify and discuss two factors that might influence a company’s decision to make a large or small stock distribution. When does it make sense to do a distribution? Why?

Sample Solution