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What would happen to external fund requirements if a company reduces its dividend payout ratio?
Wiki User
∙ 15y ago
if they reduced the dividend ratio i guess the companys external fund will be less.. because they will have more fund on hand so they wont be in need of that much of loan or they might not of need of loan at all
Wiki User
∙ 15y ago
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What is the most likely prediction after a firm reduces its regular dividend payment?
Earnings are expected to decline.
What is Stable dividend policy?
It is that policy which has stable payout ratio.By Parul KhannaStable Dividend Policy?Stabile dividends have a positive impact on the market price of shares. If dividends are stable it reduces the chance of speculation in the market and investors desiring a fixed rate of return will naturally be attracted towards such securities. Stability of dividend means either a constant amount per shares or a constant percentage of net earnings.pradeepkalari (pradeep sp)
How does share repurchase affects the debt equity ratio of the company?
Stock repurchases increases the debt equity ratio towards higher debt. Share buyback reduces the book value per share and reduces equity hence increasing the debt-to-equity ratio.
Why corporate liquidity has been declining?
Corporate liquidity may be declining because revenues are declining. If a company isn't selling enough product, then they will likely borrow money, which reduces liquidity.
What does the term principal reduction mean by banks?
It's when a bank reduces the balance on your mortgage whether on their own accord or through a company that does that for a living. Either way, you end up owing less.
Maximizing shareholder wealth means maximizing the?
Maximizing shareholder wealth means that the company reduces re-investment of profits and increases the dividend payouts. Dividend payouts are the benefits paid out to shareholders after a financial period.
Does a cash dividend affect the balance sheet?
A cash dividend reduces cash (asset, debit on balance sheet) and reduces retained earnings (part of equity, credit on balance sheet).
What is the most likely prediction after a firm reduces its regular dividend payment?
Earnings are expected to decline.
What are disadvantages of scrapping external exams?
-reduces seriousness -reduces competition -lowers excellence -reduces flow and linked learning as well as application
What is an explanation of ploughing back of profits?
To plough back profits is to reinvest the profits into future business activities. To plough back profits is the alternative to distributing profits. Distributing profits is done by paying shareholders dividends. A company may decide to pay a proportion of profits as dividend and to reinvest (plough back) the remainder.
What is an effect of educational requirements?
reduces parental freedom
Does payment of dividends reduce stockholders equity?
Answer:Yes. Equity consists of paid-in capital (received from the shareholders when they bought their shares) and retained earnings. Retained earnings are all past earnings that the company made and did not pay out as a dividend (hence: "retained"). Retained earnings therefore increases with earnings, but decreases with dividends, since dividend is a distribution of earnings to the shareholders.
Does dividend reduce profits?
When a corporation declares and pays a dividend, the dividend does not reduce the current accounting period's profit reported on the income statement. In other words, a dividend is not an expense.Dividends will reduce the amount of the corporation's retained earnings. Retained earnings are reported in the stockholders' equity section of the balance sheet.If a corporation has very profitable uses for its cash, its future profits might be less if it pays dividends instead of reinvesting the cash dividend amounts into profitable projects.
How does a payout of dividends effect the net income?
It shouldn't. Dividends are not considered an expense since stockholders are investing in the company. In return for investing, the company pays them but they are not employees.
Why is it important to develop the indigenous energy resources?
Because it reduces an external energy dependency.
Factor affecting dividend policy?
Dividend DecisionDividendMeaning: Dividend is that part of the profits of a company which is distributed amongst its shareholders.Definition: According to ICAI, "Dividend is a distribution to shareholders out of profits or reserves available for this purpose."Nature of Dividend DecisionThe dividend decision of the firm is crucial for the finance manager because it determines:1. the amount of profit to be distributed among the shareholders, and2. the amount of profit to be retained in the firm.There is a reciprocal relationship between cash dividends and retained earnings.While taking the dividend decision the management take into account the effect of the decision on the maximization of shareholders' wealth.Maximizing the market value of shares is the objective.Dividend pay out or retention is guided by this objective.Dividend PolicyFactors Affecting Dividend Policy:1. External Factors2. Internal FactorsExternal Factors Affecting Dividend Policy1. General State of Economy:In case of uncertain economic and business conditions, the management may like to retain whole or large part of earnings to build up reserves to absorb future shocks.In the period of depression the management may also retain a large part of its earnings to preserve the firm's liquidity position.In periods of prosperity the management may not be liberal in dividend payments because of availability of larger profitable investment opportunities.In periods of inflation, the management may retain large portion of earnings to finance replacement of obsolete machines.2. State of Capital Market:Favourable Market: liberal dividend policy.Unfavourable market: Conservative dividend policy.3. Legal Restrictions:Companies Act has laid down various restrictions regarding the declaration of dividend:Dividends can only be paid out of:** Current or past profits of the company. Money provided by the State/ Central Government in pursuance of the guarantee given by the Government.Payment of dividend out of capital is illegal.A company cannot declare dividends unless:** It has provided for present as well as all arrears of depreciation. Certain percentage of net profits has been transferred to the reserve of the company.Past accumulated profits can be used for declaration of dividends only as per the rules framed by the Central Government4. Contractual Restrictions:Lenders sometimes may put restrictions on the dividend payments to protect their interests (especially when the firm is experiencing liquidity problems)Example:A loan agreement that the firm shall not declare any dividend so long as the liquidity ratio is less than 1:1.The firm will not pay dividend more than 20% so long as it does not clear the loan.Internal Factors affecting dividend decisions1. Desire of the Shareholders:Though the directors decide the rate of dividend, it is always at the interest of the shareholders.Shareholders expect two types of returns:[i] Capital Gains: i.e., an increase in the market value of shares.[ii] Dividends: regular return on their investment.Cautious investors look for dividends because,[i] It reduces uncertainty (capital gains are uncertain).[ii] Indication of financial strength of the company.[iii] Need for income: Some invest in shares so as to get regular income to meet their living expenses.2. Financial Needs of the Company:If the company has profitable projects and it is costly to raise funds, it may decide to retain the earnings.3. Nature of earnings:A company which has stable earnings can afford to have an higher divided payout ratio4. Desire to retain the control of management:Additional public issue of share will dilute the control of management.5. Liquidity position:Payment of dividend results in cash outflow. A company may have adequate earning but it may not have sufficient funds to pay dividendsStability of DividendsThe term stability of dividends means consistency in the payment of dividends. It refers to regular payment of a certain minimum amount as dividend year after year.Even if the company's earnings fluctuate from year to year, its dividend should not. This is because the shareholders generally value stable dividends more than fluctuating ones.Stable dividend can be in the form of:1. Constant dividend per share2. Constant percentage3. Stable rupee dividend plus extra dividendSignificance of Stability of Dividend1. Desire for current income2. Sign of financial stability of the company3. Requirement of institutional investors4. Investors confidence in the companyDanger of Stable Dividend PolicyStable dividend policy may sometimes prove dangerous. Once a stable dividend policy is adopted by a company, any adverse change in it may result in serious damage regarding the financial standing of the company in the mind of the investors.Forms of Dividend1. Cash Dividend:The normal practice is to pay dividends in cash.The payment of dividends in cash results in cash outflow from the firm. Therefore the firm should have adequate cash resources at its disposal before declaring cash dividend.2. Stock Dividend:The company issues additional shares to the existing shareholders in proportion to their holdings of equity share capital of the company.Stock dividend is popularly termed as 'issue of bonus shares.'This is next to cash dividend in respect of its popularity.3. Bond Dividend:In case the company does not have sufficient funds to pay dividends in cash it may issue bonds for the amount due to shareholders.The main purpose of bond dividend is postponement of payment of immediate dividend in cash. The bond holders get regular interest on their bonds besides payment of the bond money on the due date.[Bond dividend is not popular in India]4. Property Dividend:This is a case when the company pays dividend in the form of assets other than cash. This may be in the form of certain assets which are not required by the company or in the form of company's products.[This type of dividend is not popular in India]Bonus SharesWhen the additional shares are allotted to the existing shareholders without receiving any additional payment from them, is known as issue of bonus shares.Bonus shares are allotted by capitalizing the reserves and surplus.Issue of bonus shares results in the conversion of the company's profits into share capital. Therefore it is termed as capitalization of company's profits.Since such shares are issued to the equity shareholders in proportion to their holdings of equity share capital of the company, a shareholder continues to retain his/ her proportionate ownership of the company.Issue of bonus shares does not affect the total capital structure of the company. It is simply a capitalization of that portion of shareholders' equity which is represented by reserves and surpluses.It also does not affect the total earnings of the shareholders
What is Stable dividend policy?
It is that policy which has stable payout ratio.By Parul KhannaStable Dividend Policy?Stabile dividends have a positive impact on the market price of shares. If dividends are stable it reduces the chance of speculation in the market and investors desiring a fixed rate of return will naturally be attracted towards such securities. Stability of dividend means either a constant amount per shares or a constant percentage of net earnings.pradeepkalari (pradeep sp)
