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Question
Explain the following as factor affecting dividend decision:
Stability of dividends
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Solution
Stability of dividends: Generally, companies try to stabilise their dividends such that there is not much fluctuation in the dividends they distribute. They opt for increasing dividends only when there is a consistent increase in earnings.
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RELATED QUESTIONS
'Abhishek Ltd'. is manufacturing cotton clothes. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is the availability of enough cash in the company and good prospects for growth in future. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of Rs 50 lakhs from I.C.I.C.I. Bank and is bound by certain restrictions on the payment of dividend according to the terms of the loan agreement.
The above discussion about the company leads to various factors which decide how much
of the profits should be retained and how much has to be distributed by the company.
Quoting the lines from the above discussion, identify and explain any four such factors.
Explain the following as factor affecting dividend decision:
Cash flow position
Explain the following as factor affecting dividend decision:
Taxation policy
Explain the following as factor affecting dividend decision:
Access to capital market
What is ‘Financial Risk?’ Why does it arise?
| 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.
Besides the total amount of long-term finance required, what must a business identify?
Under which area are short-term financing requirements considered?
How does equity compare with debt regarding repayment of capital?
Which comparison of financial risk for debt and equity is correct?
What may be the effect of a fresh issue of equity on control?
What is financial risk?
What generally happens as the proportion of debt in total capital increases?
Which statement about the cost of sources of finance is correct?
Which expenses are examples of floatation costs?
How does higher financial risk affect the suitability of taking on more debt?
Which sequence correctly orders the seven factors affecting financing decisions?
