What are two things that a corporation could do with the profits they make??

question from my business class homework, I'm not sure of what the two things are..

Several things:

1.They can declare a dividend on their stock, and pay it out to the shareholders.

2. They can plow the money back into the company to upgrade services and technologies.

3. They can use it for new research and development to create new products and services.

4. They can use it to buy back outstanding shares of stock to prevent a hostile takeover.

5. They can sit on it (like Microsoft does) as a rainy day fund.

Hope these suggestions help you.

Dividends to shareholders or company reinvestment/expansion..... but probably cars and villa's for the top brass! Had to throw that in!

They can (1) pay dividends to shareholders or (2) reinvest the money into the business.

If the company has projects in mind that will offer a return greater than the current market rate, they should generally put the money into them. Otherwise, they should give the money back to the shareholders so they can place the money somewhere that will give them a better return.

Pay their executives, and pay the taxes associated with running a corporation.

Accumulate their profits as their retained earnings for future expansions (e.g. new business ventures or buying new plant and machinery) or sharing the profits in the form of dividends to their existing shareholders.

Keep the profits. Share the profits. The question is who is going to do the best with those profits.
Keep the profits- By keeping the profits the corporation has the ability to organically (without debt or outside financial assistance) grow through acquisitions (buying smaller companies) or through investing in its own resouces, building more stores, adding products through R&D, and other things that will add to the corporations that will assist in making more profits.
Give away the profits - By giving the profits away, or granting dividends, the corporation is saying two things: we are generating more cash than we know what to do with & we want to reward our shareholders by giving allowing them to receive a true reward on their investment.

Example (Extra Credit) -
Microsoft- Microsoft kept all profits from inception through 2004 to create more products, and secure their position as the operating system monopolist (through various lawsuits). The result has been this, they still have their monopoly, they have been somewhat successful in creating new products, but ultimately struggled with growth. So in 2004, after their stock price had remained below its bubble day highs for over 4 years, the company's shareholders were not happy. Since they were a monopoly they had been able to hoard mass amounts of cash they couldn't invest within the company. So, they concluded that the best use for some of the cash was to give it back to the shareholders in the form of a dividend. The first dividend was significant $3 per share! What else this did was give large shareholders cash back at a reduced tax rate (dividends are only charged 15% rather than up to 35% income tax).

Finally, the ultimate questions that have to be asked are these:

Who can make the better use of the cash?
-The company or the shareholder- Companies should be able to, but if they see no room for further expansion in the long-term they may be better giving the money to the shareholders.

Where is the company in its growth cycle?
Growing companies (Microsoft 1990) typically need more cash on hand than mature companies (GE today).

Cut and paste this A+ answer and do something better with your Sunday.

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