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BRILLIANT’S Dividend Decision 263

Demerits of ploughing back of àm°{’$Q²>g Ho$ ßbm°CB§J ~¡H$ Ho$ Xmof
profits
Ploughing back of profits into business has ì¶mnma ‘| ßbm°CB§J ~¡H$ H$s H$B© hm{Z¶m± h¢& [a’$m¶Z|qgJ
a number of disadvantages. The main dangers Ho$ ‘w»¶ IVa| ¶m H${‘¶m§ {ZåZ{b{IV h¢…
or limitations of refinancing are as under:
1. Overcapitalization: If there is excessive 1. Amoda H¡${nQ>bmBOoeZ… ¶{X bm^ H$m A˶{YH$
ploughing back of profits, it may lead to over- ßbm°CB§J ~¡H$ {H$¶m OmVm h¡ Vmo ¶h H§$nZr Ho$ Amoda
capitalization of the company. The company H¡${nQ>bmBOoeZ H$m H$maU hmo gH$Vm h¡& H§$nZr BgHo$
may not be able to pay a fair rate of dividend to eo¶ahmoëS>g© Ho$ {bE {S>{dS>|S> H$s Xa H$m ^wJVmZ H$aZo ‘|
its shareholders. ¶mo½¶ Zht hmo gH$Vr h¡&
2. Reduces dividend: The reinvestment of 2. [aS²>¶yñS>> {S>{dS>|S>… bm^ H$m nwZ{Z©doe eo¶ahmoëS>g©
profits reduces the amount of dividend pay- Ho$ {bE ^wJVmZ ¶mo½¶ {S>{dS>|S> H$s am{e KQ>mVm h¡&
able to the shareholders.
3. Evasion of taxes: A company may re- 3. Q>¡³g go ~Mmd…$EH$ H§$nZr gwnaàm°{’$Q²>g Q>¡³g
tain earnings with the sole object of evasion of H$mo ~MmZo Ho$ EH$‘mÌ CÔoí¶ Ho$ gmW A{Zª½g H$mo [aQ>oZ H$a
super profits tax. Such evasion of taxes reduces gH$Vm h¡& Q>¡³g H$s ¶h ~MV emgZ Ho$ amOñd H$mo H$‘
the revenue of the government. H$aVr h¡&
4. Frustration among shareholders: If 4. eo¶ahmoëS>g© Ho$ ~rM {Zamem… ¶{X ì¶mnma ‘|
there is too much ploughing back of profits into
àm°{’$Q²>g H$m ~hþV A{YH$ ßbmCB§J ~¡H$ {H$¶m OmVm h¡ Vmo
business it creates dissatisfaction ¶h eo¶ahmoëS>g© Ho$ ~rM Ag§Vw{ï> VWm
and frustration among share-
Demerits of plough- {Zamem ~Zm gH$Vm h¡&
holders.
ing back of Profits
Thus, to conclude, in the Bg àH$ma {ZîH$f© ê$n ‘| nmBJa Ho$
1. Overcapitalization
words of Pigor, "Excessive plough- eãXm| ‘| ''A˶{YH$ ßbm°CB§J ~¡H$ gm‘m{OH$
2. Reduces dividend
ing back entails social waste, be- An춶 H$aVm h¡ ³¶m|{H$ CZ bmoJm| H$mo YZ
3. Evasion of taxes
cause the money is not made
4. Frustration among CnbãY Zht H$am¶m OmVm h¡ Omo g‘wXm¶
available to those who can use it
shareholders Ho$ {bE gd©loð> bm^ ‘| BgH$m Cn¶moJ H$a
to the best advantage for the com-
munity but is retained by those gH$Vo h¢ qH$Vw CZHo$ Ûmam aIm OmVm h¡
who have earned it." {OÝhmoZo Bgo A{O©V {H$¶m h¡&'' 
REVIEW QUESTIONS

Q.1. Explain the Walter's Model for corporate dividend Policy.
H$m°nm}aoQ> {S>{dS>|S> nm°{bgr Ho$ {bE dmëQ>a H$m ‘m°S>b g‘PmB¶o& [See Q. 27]

Q.2. Explain the factors affecting dividend decision.
{S>{dS>|S> {ZU©¶ H$mo à^m{dV H$aZo dmbo H$maH$m| H$m dU©Z H$s{OE& [See Q.26]



""g‘¥{Õ à{VñnYm© go Zht AmnH$s aMZmerbVm go AmVr h¡&''