Page 99 - AFM Integrated Workbook STUDENT S18-J19
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The dividend decision
3.2 Dividend capacity
The factors listed above limit the ‘dividend capacity’ of the company.
Legally, dividend capacity is determined by the amount of accumulated distributable
profits.
However, more practically, it can be calculated as the company’s Free
Cash Flow to Equity (FCFE – covered in more detail in the later Chapter
13: Business valuation).
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