Quora Answer: If a Company Has a Profit of $50 Million, & an Investor Owns 10% of the Company, Does He Earn $5 Million?

The following is my answer to a Quora question: “If a company has a profit of $50 million per annum, and an investor owns 10% of the company, does he earn $5 million?” 

In short, no, that is not going to happen.  Firstly, is this profit before, or after tax?  If the company declares a net profit, not gross profit, of $50 million, after tax, interest payments, depreciation of assets, and amortisation, the board needs to propose whether they are going to issue a dividend on the share.  No sane company is going to pay out all the profit, and not retain some of those earnings for the continued running of the business. 

Businesses, as a habit, retain much of their profit to strengthen their capitalisation or even meet those capitalisation requirements, to purchase assets, to shore up the share price if they are listed, to prepare a war chest for mergers and acquisitions, or simply to have funds in the money market for practical reasons.  Only once these, or myriad other reasons, are addressed, will the board consider a payout of dividends.