Once a company earns a profit, it must decide whether to retain the earnings for reinvestment in the company or pay dividends to shareholders. If paying dividends, the company may establish a dividend policy that impacts investors' perceptions. The decision depends on the company's current and future situation as well as investors' preferences. Dividends are paid from current or past earnings and can affect a company's capital structure by increasing equity relative to debt. Companies must choose whether to retain or distribute profits, with retaining suitable for growth companies and distributing suitable to maximize shareholder wealth.