Sunday, 26 February 2012
COMPOUNDING EFFECT OF GROWTH
Regular growth in earnings per share can have a compound effect if all, or substantially all, of the profits are retained.
A company, for example, with earnings per share of 40 cents growing regularly 9 % would, in ten years produce earnings per share of 87 cents.
Of course, if the investor can do better with retained earnings than the company can, his or her interests are better served by a full distribution of profits.