Page 261 - Corporate Finance PDF Final new link

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BRILLIANT’S Dividend Decision 261

Advantages of Ploughing Back of àm°{’$Q²>g H$s ßbm°CB§J ~¡H$ Ho$ bm^…
Profits
The main advantages of ploughing back of (a) H§$nZr (b) eo¶ahmoëS>g© VWm (c) gmogm¶Q>r Ho$
profits to (a) company (b) shareholders and {bE àm°{’$Q²>g H$s ßbm°CB§J ~¡H$ Ho$ ‘w»¶ bm^ {ZåZ h¡…
(c) society are as under:
(A) Advantages to the Company (A) H§$nZr Ho$ {bE bm^
1. Shock absorber: In a period of depres- 1. em°H$ EãOm°~©a… ‘§Xr H$s Ad{Y ‘| ì¶mnma ‘| nwZ{Z©doe
sion, the part of profits reinvested in business {H$¶o J¶o bm^ H$m ^mJ em°H$ EãOm°~©a Ho$ ê$n ‘| H$m¶© H$aVm
acts as a shock absorber. The com- h¡& H§$nZr {~OZog gm¶H$b Ho$ CVma VWm
pany can easily face the shocks of M‹T>md Ho$ PQ>H$m| H$m gabVm go gm‘Zm
Advantages of
ups and downs of business cycles. Ploughing Back of H$a gH$Vr h¡&
2. Aids in smooth running of Profits 2. ì¶mnma Ho$ gwMmé g§MmbZ ‘|
business: This self financing (A)To the Company ghm¶Vm… ¶h goë’$ ’$m¶Z|qgJ {d{Y
method (ploughing back of prof- 1. Shock absorber (àm°{’$Q²>g H$s ßbm°CB§J ~¡H$) ì¶mnma Ho$
its) aids in the smooth running of 2. Aids in smooth run-
the business. ning of business gwMmé g§MmbZ ‘| ghm¶Vm H$aVr h¡&
3. Increase in creditworthi- 3. Increase in creditwor- 3. H§$nZr H$s {dídgZr¶Vm ‘| d¥{Õ…
ness of the company: A company thiness of the com- EH$ H§$nZr Omo àm°{’$Q²>g Ho$ EH$ ^mJ H$mo
which reinvests a part of profits pany à{Vdf© ì¶mnma ‘| [aB§doñQ> H$aVr h¡ Cgo
every year into the business is 4. Self dependent com-
considered a stable company. As pany pñWa H§$nZr ‘mZm OmVm h¡& AV… ¶h H§$nZr
such it increases the creditworthi- 5. Expansion and H$s {dídgZr¶Vm ~‹T>mVm h¡&
ness of the company. growth of business
4. Self dependent company: 6. Redemption of long 4. AmË‘{Z^©a H§$nZr… EH$ H§$nZr
A company which retains a part term debts Omo bm^ H$m EH$ ^mJ àmßV H$aVr h¡ EH$
of profits becomes self dependent (B)To the share holders ~‹S>r gr‘m VH$ goë’$ {S>n|S>|Q> ~Z OmVr h¡&
to a great extent. It depends less 1. Increase in the value
on outside agencies for financial of shares ¶h ’$m¶Z|{e¶b ghm¶Vm Ho$ {bE ~mø
help. 2. Increase in earning EO|grO na H$‘ {Z^©a H$aVr h¡&
5. Expansion and growth of capacity 5. ì¶mnma H$m {dñVma VWm d¥{Õ…
business: The company with re- 3. Retaining the control [aQ>|S>>A{Zª½g dmbr H§$nZr {dñVma
tained earnings can spend funds (C) To the society AmYw{ZH$sH$aU, ‘erZar Ho$ à{VñWmnZ
for expansion, modernization, re- 1. Increase in the rate of
placement of machinery etc. capital formations Am{X Ho$ {bE ’§$S²>g 춶 H$a gH$Vr h¡&
2. Rapid industrializa-
6. Redemption of long term 6. bm§J Q>‘© S>oãQ²>g H$m [aS>råßeZ…
tion
debts: A company which re-em- EH$ H§$nZr Omo bm^ Ho$ EH$ ^mJ H$mo nwZ…
3. Increase in industrial
ploys a part of profits into busi- ì¶mnma ‘| bJmVr h¡, gm‘mݶV… BgHo$ bm§J
capacity
ness is generally able to pay back Q>‘© bmoZ H$mo nwZ… ^wJVmZ H$aZo ‘| ¶mo½¶
4. Better quality of goods
its long term loans. hmoVr h¡&
at reduced prices