A Company with Cash Flow Shortages Must Pay Common Stockholders

question 319

True/False

A company with cash flow shortages must pay common stockholders their dividends before paying preferred stockholders their dividends.

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Definitions:

Retained Earnings

Retained earnings are the cumulative amount of net income left over for a company after it has paid out dividends to its shareholders, reinvested in the business, or used to pay off debt.

Treasury Stock

Shares that were issued and later reacquired by the corporation, reducing the number of outstanding shares in the market.

Common Stock

Shares of ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.