Rue 21 is unique in that is has $0 in long-term debt. The company has large amounts of cash with no debt. This places the company on sound financial footing as compared to other companies within its peer group (Rich, 2001).
Discussion on retained earnings
Retained earning are arguable the most important earnings for the company. Retained earnings are earnings that are not paid out to shareholders in the form of dividends or stock repurchases. Instead, the earnings are retained in the business in hopes of generated still further increases in earnings. This is very beneficial to both Rue 21 and its competitors can solidify their respective places in the competitive landscape of business. Retained earnings also allow both companies to pursue positive net present value projects which will help create shareholder wealth. This is particularly important if...
If both companies can get a better return on their retained earnings, over time, the company will flourish and prosper. Over the past two years, both companies have increased their retained earnings while increasing the dividend very minimally.
However, by paying excessive dividends to shareholders, either Rue 21 or H & M. will be unable to take on all the projects they believe will generate still further shareholder wealth. Instead, they must give money back to shareholders in the form of dividends which are often tax inefficient. If the companies could instead retain their earnings to grow as oppose to giving them up in dividends, the shareholder overall is better served. First, by keeping the retained earnings in the business, the
