Dividend with negative retained earnings?
Trying to lever up a target with minimal operating history. We're running a scenario for the client where they maximize leverage and pay themselves a dividend with excess proceeds. Problem is paying a dividend that large makes accounting retained earnings go negative since the majority of the cash infusion was via debt.
Client modeled this as impossible, with excess cash staying on balance sheet.
Is this possible? Will the SEC burn the client down for paying dividends in excess of accumulated retained earnings? Google not being too helpful.
If they can service the debt, it's absolutely possible
Bump, also interested to find out if it's possible to pay dividends with negative equity on the B/S of a private company
I vaguely recalled a VP turn down this idea
OP here - for what it’s worth, we changed the model to make it possible. Don’t think there was any legal barrier.
Try googling Dividend + Distributable Reserves and read up on that (rather than retained earnings).
https://www.bamsec.com/filing/119312521055734/1?cik=1286681&table=140
No, who tf uses book equity in any multiple calcs or anything that would go into a book? Unless you work FIG, know they how P/B mults a lot
Accrual accounting for equity doesn't tell you much other than (a) lots of shitty quarters with negative income or (b) a dividend recap like you described.
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