V Unit finance - V Unit Dividend decision Working capital...

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V Unit Dividend decision Working capital Inventory Management Cash Management Receivables Management
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Dividend Decision
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The term dividend refers to that part of profits of a company which is distributed by the company among its shareholders. It is the reward of the shareholders for investments made by them in the shares of the company.
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It refers to the policy that the management formulates in regard to earnings for distribution as dividends among shareholders. it determines the division of earnings between payments to shareholders and retained earnings
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Significance of dividend policy The firm has to balance between the growth of the company and the distribution to the shareholders It has a critical influence on the value of the firm It has to also to strike a balance between the long term financing decision( company distributing dividend in the absence of any investment opportunity) and the wealth maximisation
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The market price gets affected if dividends paid are less. Retained earnings helps the firm to concentrate on the growth, expansion and modernisation of the firm To sum up, it to a large extent affects the financial structure, flow of funds, corporate liquidity, stock prices, growth of the company and investor’s satisfaction
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Factors influencing the dividend decision Stability of earnings Financing policy of the firm Liquidity of funds Dividend policy of competitive firms Past dividend rates Debt obligation Ability to borrow Growth needs of the company Profit rates Legal requirements Corporate taxation policy Tax position of shareholders Effect of trade policy Attitude of the investor group
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Stability of dividends It is the desirable policy of the management to distribute the shareholders a certain percentage of earnings as a reward for their investment. It may not always relate to the earnings of the company. Dividend practices: Constant dividend per share Constant percentage of net earnings Small constant dividend per share plus extra earnings Dividend as a fixed percentage of market value
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Significance of stability of dividend Confidence among shareholders Investors desire for current income Institutional investor’s requirement Stability in market prices of shares Raising additional finances Spreading of ownership of outstanding shares Reduces the chances of loss of control Market for debentures and preference shares
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Forms of Dividend Scrip Dividend- An unusual type of dividend involving the distribution of promissory notes that call for some type of payment at a future date. Bond Dividend- A type of liability dividend paid in the dividend payer's bonds .
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