In theory, firms should only pay dividends if the company has excess cash not needed for expansion, capital expenditures, or repayment of debt.

Question

Quizplus · Accepted Answer

Dividends are a distribution of profits to shareholders and should only be paid when a company has surplus cash after fulfilling its financial obligations, such as reinvestment in the business or repaying debt. If a company pays dividends without sufficient cash reserves, it may negatively impact its financial health and future growth prospects.

In Theory, Firms Should Only Pay Dividends If the Company