Start networking and exchanging professional insights

Register now or log in to join your professional community.

Follow

The company made ​​a profit at the end of the fiscal year, but there is no money that would share a founders. What is causing this?

user-image
Question added by Mirzet Ramić , Director , ALAHMADIA PARTNERS REAL ESTATE DOO SARAJEVO
Date Posted: 2014/01/08
Rehan Qureshi
by Rehan Qureshi , Financial Consultant , Self Employeed

there are many reasons. like purchase of fixed assets, purchase of Stock, investment, alot of prepayments, If you see the cash flow statement it will clearly give you the real picture where the cash has been used . 

Deleted user
by Deleted user

In this case we have to get the variation between the balances in beginning and ending of the period from the balance sheet .

and we have many reasons for that like may be the balances of debitors are high .

Ahmed Saeed
by Ahmed Saeed , Supply Chain and Purchasing Manager , Tuff Gear Ltd.

What I understand from your question is that you are talking about dividends. 

You don’t have to pay dividends in the year that the profits are made. The maximum amount that can be paid out as a dividend is a running balance of the accumulated profits (less any accumulated losses), less the accumulated dividends previously paid, from the date the Company started. 

For Example

In Year1 your company made profits after tax of £20,000 but did not pay any dividends and, in Year2, you made further profits of £30,000 after tax. You could declare a dividend at the end of Year2 of £50,000. 

 

Mohamed Abu EL-Saud
by Mohamed Abu EL-Saud , General Accountant , Protech For Industrialism and Developement

.The reason for that may be credit sales or services.

Mohamed Esam Mohamed Kamel
by Mohamed Esam Mohamed Kamel , Financial Analyst , Egyptian Water & Wastewater Regulatory Agency (EWRA)

Short answer: Income statement isn't enough, Review the cash-flow statement for so many reasons.

Subhranshu Ganguly
by Subhranshu Ganguly , Quality Analyst. , WIPRO

If there is an rxpansion plan the whole profit may go the reserves. Sometimes the company can offer shares to the company co owners in leu of cash. The company keepsthe money which it needs. The  shareholders gain more shares that is oppertunity to earn much more in the future.

Huda Baloum
by Huda Baloum , Administration Supervisor , Jordan Golden Jewel Co.

Assets, credit sales and payments that have to be made.

Menerva Melad
by Menerva Melad , Account Executive, Key Accounts , Graphic Home Company

Profits are different from cash. A company may make profits but do not have cash for many reasons such as credit sales to customers

Mohammad Tohamy Hussein Hussein
by Mohammad Tohamy Hussein Hussein , Chief Executive Officer & ERP Architect , Egyptian Software Group

Profits are different from cash. A company may make profits but do not have cash for many reasons such as credit sales to customers, paying depts, or assigning cash as capital reserve or any other leagally accepted reason.

Karen Marutyan
by Karen Marutyan , Country Finance Manager , Cenomi

There can be different reasons causing this.

  1. Company had spent the profit on investments (e.g. buying new fixed assets)
  2. Company covered payables remaining from last years (long term payables such as long term loan)
  3. Company has recievables or prepayments which will be covered during next year.

Abduh mohsen AL-dheleai
by Abduh mohsen AL-dheleai , مدير ادارة الاستمارات النقدية , الهيئة العامة للتأمينات والمعاشات

profit at the end of the fiscal year don’t have to be monetary, the profit may be cash or add it assets or new fixed assets.