DECA Marketing Cluster Practice Exam

What term describes a portion of profits returned to shareholders?

1. Net Profit

2. Dividend

3. Equity Share

4. Retained Earnings

The correct answer is: Dividend

The term that describes a portion of profits returned to shareholders is "dividend." Dividends are a way for companies to distribute a part of their earnings back to their investors. When a company earns a profit and has sufficient cash flow, it may choose to pay dividends as a means of rewarding shareholders for their investment. This can take the form of a cash payment or additional shares of stock, depending on the company's dividend policy. Dividends are typically distributed on a regular basis, such as quarterly, and can be an important consideration for investors who are looking for income-generating investments. Other terms associated with company profits serve different purposes. Net profit refers to the total profit after all expenses and taxes have been subtracted but does not specifically indicate the amount returned to shareholders. Equity share relates to the ownership stake held by shareholders in the company rather than a distribution of profit, while retained earnings represent the portion of profit that is reinvested in the company instead of being paid out as dividends. Therefore, "dividend" is the precise term that captures the concept of returned profits to shareholders.