Dividend Decision Topic in Financial Management for CS Professionals
We are Takshila Learning, your online education partner. We offer CS classes through online/offline mode. CS online coaching classes have been categorized into CS Foundation, CS Executive, and CS Professional. Our motive is to assists student in their journey of CS Preparation. Today we have brought an important article related to ‘Financial Management’, an important part of CS Professional. While preparing for CS, you must have studied in details about Financial Management. In this blog, we will discuss “Dividend Decision”.
Dividend Decision : It is an important decision of Management as the basic objective of Financial Management is maximization of shareholders wealth. Dividend disbursement or earnings retention is a very important decision affecting the wealth of the shareholders.
Dividend decision deals with the matter of amount to be paid to equity shareholders as a dividend. The increase or decrease or stability in dividends is affected by many factors.
Few Factors that affect Dividend Decision are:
- Expectation of Shareholders
- Large Income class shareholders do not expect to receive dividend every year.
- Small & Medium Income class shareholders expect to receive dividend every year as they treat the dividend as their regular income source.
- The class of income can be estimated on the basis of their shareholding pattern. If majority shareholders have large shareholding then it is considered as they belong to high-income class & if majority shareholders have a small shareholding pattern then it can be concluded that they belong to medium/low-income
- Investment Opportunity in hand
If the company has good investment opportunity it is better to retain earnings and hence fewer dividends will be distributed.
- Availability of Profits
Dividends can be paid only after charging prescribed Depreciation.
- Availability of Funds
Since dividends are to be paid in cash hence the availability of cash is an important factor to be considered.
- Stability in Earnings
The company having stable earnings can pay high dividends but the company with volatile earnings should preferably pay a lesser amount of dividends.
- Discretion of Board of Directors
The directors may decide not to give high dividends as per the management policy or they may plan to give high dividends as per their discretion.
Note: There could be many factors that could affect dividend decision.
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