Retained earnings are important because if you invest in a company, you want to know they are earning money and are able to keep some for themselves. Looking at the balance sheet, of course you want to see some dividends because that means the company is doing well and internal people being incentivized, but you do not want all the money going out.
How important is Aareal Bank's Liquidity
Aareal Bank
financial leverage refers to using borrowed capital as a funding source to finance Aareal Bank AG ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Aareal Bank financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Aareal Bank's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Aareal Bank's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the
breakdown between Aareal Bank's total debt and its cash.
If you are looking at this number and it appears to be small compared to others in the industry, you may want to look at a few things. First, ensure the company has enough money to be paying dividends because if they are doing poorly and money is still going to shareholders, it may not be the best situation. Secondly, you want to take a look at the underlying health of the company and ensure sales and revenue is coming. If there is a critical error cause the low retained earnings, it may be an indication of what is to come. Lastly, this number may be low because they are reinvesting or paying larger dividends due to the success of the company. Be sure to fully understand the story to understand the rhyme and reason for the number.
Some companies pay constant dividends, some pay no dividends, and others pay dividend that are special, such as when the company is doing exceptionally well. The focus on dividends is important as it is a part of the equation and is one of the most controllable parts of the retained earnings.
This numbers is fantastic for fundamental research and should certainly be used in your research. In no way would it hurt looking at this number and it will only bring value. Be sure to look at other areas of the company and their financials because this may not tell the whole story. Retained earnings are important though because the company needs to keep some money for itself. If you get stuck, reach out to an investing community and bounce your ideas off of them. Should that not work, reach out to your investing professional and they can help to point you in the right direction. Retained earnings is a critical part in the balance sheet and needs to be monitored during and after you invest in a particular company.
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Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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