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Question
Explain the following as factor affecting dividend decision:
Cash flow position
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Solution
Cash Flow Position: Payment of dividends implies a cash outflow from the company. If a company has lesser cash (low liquidity), then it will not be able to pay many dividends. Even with higher profits, a company would not be able to pay many dividends even when it has less cash.
RELATED QUESTIONS
Vasvi was a student of Commerce in class XII. Her father was a farmer, who grew different varieties of wheat and was well versed about various aspects of wheat cultivation. He was also selected by the government for a pilot-project on wheat cultivation. As a project, she decided to study the feasibility of marketing good quality wheat at the reasonable price. Her father suggested to her to use the internet to gather customers’ views and opinions. She found that there was a huge demand for organic packed wheat. She knew that there were no pre-determined specifications in case of wheat, because of which it would be difficult to achieve uniformity in the output. To differentiate the product from its competitors, she gave it the name of ‘Mahan-organic wheat’ and classified it into three different varieties namely — Popular, Classic and Supreme, based on the quality. She felt that these names would help her in product differentiation.
Explain the three functions of marketing, with reference to the above paragraph
Explain the following as factor affecting dividend decision:
Growth opportunities
Explain the following as factor affecting dividend decision:
Shareholder's preferences
Explain the following as factor affecting dividend decision:
Legal constraints
Explain the following as factor affecting 'financing decision'.
Cash flow position of the business
Explain the following as factor affecting 'financing decision'.
Level of fixed operating cost
Explain the following as factor affecting 'financing decision'.
Control consideration
Give the meaning of ‘Investment’ and ‘Dividend’ decisions of financial management.
Explain the factors affecting the dividend decision.
| Ananta Ltd. is a company dealing in ready-made garments for the last many years. Recently the profit of the company has started increasing. The finance manager decided to retain the profit instead of distributing it among shareholders. |
- Identify and state the financial decision taken by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
Identify the financial decision that is concerned with deciding how much of the profit earned by a company is to be distributed to shareholders and how much should be retained in the business. Also state any three factors affecting the identified decision.
Under which area are short-term financing requirements considered?
Which set of outcomes is affected by a financing decision?
What is the nature of debt in a debt-and-equity comparison?
What is the nature of equity in a debt-and-equity comparison?
What happens to debt’s interest and principal commitments when profits are inadequate?
How is interest treated while determining taxable profit?
Which expenses are examples of floatation costs?
