Say a company wants a $100MM term loan so they can issue a $100MM dividend to its owners.
On the pro forma BS, debt obviously increases by $100MM, but what is the offset to this increase? A decrease in equity, but what specifically do you deduct from?
| +247 | UBS Tech MD hires Son (from no-name college) as an Intern | 45 | 1h |
| +163 | WTF IS THIS COMPETITON | 59 | 1h |
| +161 | Mayday, Mayday: Key UBS Leaders (Former Barclays MDs) Abandoning Ship | 28 | 2d |
| +117 | Is banking in the south more sustainable? | 27 | 5h |
| +91 | The Intern Starter Pack | 15 | 6h |
| +75 | Current State of the League Tables | 28 | 4h |
| +48 | Perella Weinberg to Cut 10% of Workforce, Including Partners | 31 | 16h |
| +44 | [Official] 2026 IB Analyst Bonus Megathread (with 2025 Consolidated Pay and Perks/Benefits) | 8 | 18h |
| +38 | UBS Groups Ranked by Future Outlook | 20 | 20h |
| +32 | PWP Layoffs????? | 18 | 3d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Think about it in two steps, raising the TL, then paying the dividend. In the first step, cash is up by $100, debt also up by $100. Second step, cash is down by $100, equity also down by $100.
You can put the two steps together and say it's cash neutral. Then debt and equity offset by $100 in either direction, still balance.
Here's a good div recap overview: https://multipleexpansion.com/2018/01/31/Dividend-Recap/</a">https://multipleexpansion.com/2018/01/31/Dividend-Recap/
Retained earnings...
Break the transaction down into two smaller items; the capital acquisition (term loan), and the dividend payment to shareholders. To help with this sort of stuff I used to break down the B/S to "Cash Asset + Noncash Assets = Liab. + Contr. Capital + Earned Capital" where the Earned Capital section would contain both the Retained Earnings (what you'll use for the second part of the transaction) and Accumulated other comprehensive loss items. So, looking specifically at the question you asked about the effect on the equity section, if a cash dividend of $10million is paid out then Cash Asset and Earned Capital should both equal -10m. Since dividend payments directly influence the Retained Earnings item, they bypass the income statement so you're done after adjusting these accounts.
Et unde exercitationem vitae impedit. Hic in vero consequatur repellendus a temporibus soluta.
Nisi ipsum nihil saepe cumque quod exercitationem. Soluta qui illo nihil illo consequatur.
Voluptates velit sapiente nulla sint tempore. Beatae maxime vero tempora qui dolore. Omnis quos et maxime voluptate eaque sunt. Sunt natus amet ipsum distinctio aut ex laboriosam. Placeat tempore aliquid assumenda et exercitationem beatae et. Repellat illum qui eligendi sed quas dolore.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...