Page 240 - Corporate Finance PDF Final new link

NPP

240 Corporate Finance BRILLIANT’S

FACTORS AFFECTING DIVIDEND DECISION
{S>{dS>|S> {ZU©¶ H$mo à^m{dV H$aZo dmbo H$maH$

Q.26. What are factors that a company should in general consider before it takes a decision on
dividends?
EH$ H§$nZr {S>{dS>|S²>g na {ZU©¶ boZo Ho$ nhbo gm‘mݶV… {H$Z H$maH$m| na {dMma H$aoJr?

OR
Examine the factors determining the dividend policy of a company.
EH$ H§$nZr H$s {S>{dS>|S> nm°{bgr H$m {ZYm©aU H$aZo dmbo H$maH$m| H$m narjU H$s{OE&

Factors Affecting Dividend Decision {S>{dS>oÝS> {S>[gOZ H$mo à^m{dV H$aZo dmco \¡$ŠQ>g©
Factors which affect dividend decision {S>{dS>oÝS> {S>grOZ H$mo à^m{dV H$aZo dmco \$¡ŠQ>g©
may be grouped into two broad categories: H$mo Xmo {dñV¥V lo{U`m| _| ~m§Q>m J`m, Omo Bg n«H$ma h¡:
I. Ownership Considerations I. AmoZa{en H§$[gS>aoeÝg Ed§
II. Firm Oriented Considerations II. \$_© Am°[aEÝQ>oS> H§${gS>aoeÝgŸ&

I. Ownership Considerations I. AmoZa{en H§$[gS>aoeÝg
When ownership is concentrated with a O~ AmoZa{en Hw$N> cmoJm| _| hr g§Ho$pÝÐV h¡ Vmo
few people, there is no problem in identifying AmoZa{en BÝQ>aoñQ> kmZ H$aZo _| H$moB© g_ñ`m Zht hmoJrŸ&
ownership interest. But if the ownership is naÝVw `{X Am°Za{en [S>goÝQ´>cmBÁS> hmo Vmo BÝQ>aoñQ> H$mo
decentralised, the identification of interest be-
comes difficult. Inspite of this, efforts should be kmV H$aZm H${R>Z hmoJmŸ& BgHo$ A{V[aº$ eo`ahmoëS>g© Ho$
made to ascertain the following interests of {ZåZ{c{IV {hVm| H$m nVm cJmZo H$m à`ËZ {H$`m OmZm
shareholders: Mm{hE:
(i) Current income requirement of share- (i) eo`ahmoëS>g© H$s H$a§Q> BÝH$_ H$s Amdí`H$Vm&
holder.
(ii) Alternative uses of funds. (ii) \$ÊS²>g H$m d¡H$pënH$ Cn`moJŸ&
(iii)Tax matters affecting shareholders. (iii) eo`ahmoëS>g© H$mo à^m{dV H$aZo dmco Q>oŠg _oQ>g©Ÿ&
II. Firm Oriented Considerations II. \$_© Amo[aEÝQ>oS> H§${gS>aoeÝg
(i) Contractual and legal restrictions. (i) H$m°ÝQ´>oŠMwAc Ed§ crJc aopñQ´>ŠeÝg &
(ii) Liquidity and working capital. (ii) {c{Šd{S>Q>r Ed§ d{Hª$J H¡${nQ>c &
(iii)Need for fund for future expansion. (iii)â`yMa EŠgnmÝeZ Ho$ {cE \$ÊS> H$s Amdí`H$Vm &
(iv)Risk of losing control of organization. (iv)Am°J}ZmBOoeZ Ho$ {Z`§ÌU H$mo Imo XoZo H$s [añH$ &
(v) Business cycles. (v) {~OZog gm`H$ëg &
(vi)Post-dividend policy. (vi)nmoñQ>-{S>{dS>oÝS> nm°{cgr &
Following are some more factors, which H$ånZr H$s {S>{dS>oÝS> nm°{cgr H$mo à^m{dV H$aZo dmco
affect the dividend policy of a company: Hw$N> AÝ` VËd {ZåZ{c[IV h¡:
1. Nature of Business: It is an important 1. {~OZog H$m àH$ma: `h {S>{dS>oÝS> nm°{cgr H$m
determinant of dividend policy. Companies EH$ _hËdnyU© {ZYm©aH$ VËd h¡Ÿ& Eogr H$ån{Z`m§ {OZH$s