हिंदी

Financial Decisions> Dividend Decision

Advertisements

Topics

Estimated time: 9 minutes
CBSE: Class 12

Meaning

  • Dividend decision means deciding how much profit, after tax, will be given to shareholders and how much will be kept back in the business.
  • Dividend is the part of profit that shareholders receive as income now.
  • The profit that is kept in the business is called retained earnings and it helps the business earn more in the future.
  • If the company keeps more profits inside, it needs less money from outside sources.
  • While deciding dividend, the aim is to increase the wealth of shareholders.

Factors Affecting Dividend

  • Amount of earnings: Higher current and past profits allow higher dividend.
  • Stability of earnings: Stable profits support higher dividends; unstable profits lead to smaller dividends.
  • Stability of dividends: Companies try to keep dividend per share steady and change it only when higher profits are expected to continue.
  • Growth opportunities: Good chances of growth make the company retain more money, so dividend is lower.
  • Cash flow position: Company must have enough cash to pay dividend, not just accounting profit.
  • Shareholders’ preference: Management considers if shareholders want a regular minimum dividend.
  • Taxation policy: Tax on dividend versus capital gains influences whether more is paid out or retained.
  • Stock market reaction: Increase in dividend is seen as good news and may raise share prices; decrease can lower prices.
  • Access to capital market: Large, reputed companies can raise funds easily and may pay higher dividends than smaller firms.
  • Legal constraints: Company law puts limits on dividend payout which must be followed.
  • Contractual constraints: Loan agreements may restrict dividend; companies must respect these conditions.
CBSE: Class 12

Key Points: Dividend Decision

  • Dividend decision = profit sharing vs profit retention.
  • Dividend gives income now; retained earnings support future growth.
  • More retained earnings mean less need for outside finance.
  • Profit level, profit stability, and dividend stability strongly shape dividend.
  • Growth plans, cash, shareholder choice, tax, market reaction, and access to funds all influence the dividend amount.
  • Company law and loan conditions can restrict how much dividend is paid.
Advertisements
Share
Notifications

Englishहिंदीमराठी


      Forgot password?
Use app×