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36 Corporate Finance BRILLIANT’S

and the balance should be retained. The AWdm BgH$m Hw$N> ^mJ aIH$a ({Ogo [aQ>oÝS> A{ZªJ H$hVo
dividend policy should be one, that maximizes h¢) eof cm^ {S>{dS>oÝS> Ho$ ê$n _| XoZm h¡Ÿ& {S>{dS>oÝS> nm°{cgr
the value of shares. Dividend decision is not Bg àH$ma H$s hmoZr Mm{h`o {H$ h_mao eo`g© H$s _mH}$Q> d¡ë`y
easy because it is affected by various factors
like what is the proportion of preferential A{YH$V_ hmo gHo$Ÿ& {S>{dS>oÝS> {S>grOZ coZm AmgmZ Zht h¡
shares in our capital structure and what are Š`m|{H$ `h ~hþV gr ~mVm| go à^m{dV hmoVm h¡, O¡go h_mao
the investment opportunities available in H¡${nQ>c ñQ´>ŠMa _| {à\$a|{e`c eo`g© {H$VZo h¢ VWm _mH}$Q>
market, etc. The financial manager should also
consider that the rate of dividend should _| BÝdoñQ>_|Q> H$s CnbãY Anm°À`w©{ZQ>rO H¡$gr h¢& \$m`ZopÝe`c
increase gradually. Sudden increase in the _¡ZoOa H$mo `h ^r Ü`mZ aIZm Mm{h`o {H$ {S>{dS>oÝS> Ho$ aoQ>
dividend in any particular year may hyper pñWaVmnyd©H$ Yr_o-Yr_o ~‹ToŸ& AMmZH$ {H$gr df© ~hþV A{YH$
the shareholder's expectation and they would {S>{dS>oÝS> XoZo go eo`a hmoëS>g© H$s AnoúmmE§ ~hþV ~‹T> OmVr h¢
be disappointed if the same rate of dividend
could not be maintained by company next year. Am¡a AJco df© `{X CVZm {S>{dS>oÝS> H$ånZr Z Xo gHo$ Vmo
Hence, it is a crucial decision for a financial CZ_o§ {Zamem \¡$b OmVr h¡Ÿ& AV: Hw$c cm^ _| go {H$VZm
manager to decide about what portion of profit ^wJVmZ {S>{dS>oÝS> Ho$ ê$n _| H$aZm h¡, Bgo no-AmCQ> aoemo
should be paid as dividend, popularly known H$hVo h¢, BgH$m {ZYm©aU H$aZm \$m`ZopÝe`c _¡ZoOa Ho$
as pay-out ratio. NPP
{c`o EH$ O{Q>c {ZU©` h¡Ÿ&
4. Liquidity Decision: Management of 4. {cpŠd{S>Q>r {S>[gOZ: H$a§Q> AgoQ²>g H$m _¡ZoO_|Q>
current asset is another important finance {H$gr \$m`ZopÝe`c _¡ZoOa H$m EH$ Am¡a _hÎdnyU© H$m`© `m
function of a financial manager. Current assets {ZU©` h¡Ÿ& H$aÝQ> AgoQ²>g H$mo ^r AË`§V gmoM-g_PH$a
should be managed efficiently, so that risk of XúmVmnyd©H$ _¡ZoO H$aZm Amdí`H$ h¡ Vm{H$ BÝgm°ëdoÝgr (O~
insolvency may be minimized. Investment in h_mao nmg AnZr XoZXm[a`m| H$m ^wJVmZ H$aZo hoVw n`m©ßV YZ
current assets affects firm's profitability, `m gån{Îm`m± Z hmo) H$s [añH$ H$mo Q>mcm Om gHo$Ÿ& H$aÝQ>
liquidity and risk. If there are insufficient
AgoQ²>g _| BÝdoñQ>_|Q> go H$ånZr H$s àm°{\$Q>o{~{cQ>r, {cpŠd{S>Q>r
current assets, its liquidity will be badly
Ed§ [añH$ H$m ñVa à^m{dV hmoVm h¡Ÿ& `{X H$a§Q> AgoQ²>g
affected. But if we maintain liquidity, the
An`m©ßV hmoVr h¡ V~ {bpŠd{S>Q>r ~war Vah go à^m{dV hmoVr
profitability will suffer because idle current
h¡Ÿ& {H$ÝVw `{X h_ {bpŠd{S>Q>r H$mo _oÝQ>oZ H$aVo h¢, V~
assets will not earn anything. Therefore, a
àm°{\$Q>o{~{bQ>r _| H$_r Am`oJr Š`m|{H$ AmBS>b H$a§Q> AgoQ> go
proper balance must be maintained between
Hw$N> ^r A{O©V Zht hmoVr h¡Ÿ& Bg{c`o, BZ XmoZm| _| g§VwcZ
profitability and liquidity. So it is the duty of
ñWm{nV H$aZm AË`§V Amdí`H$ h¡Ÿ& `h {ZU©` H$aZm
financial manager to estimate the needs of
\$m`ZopÝe`c _¡ZoOa H$m Xm{`Ëd h¡ {H$ H$aÝQ> AgoQ²>g H$m
firm's current assets and make sure that funds
codc AZw_m{ZV H$ao VWm `h gw{ZpíMV H$ao {H$ O~ ^r \§$S>
would be made available, when it is needed.
H$s Amdí`H$Vm hmo V~ dh CncãY hmo gHo$Ÿ&
Note: From the above discussion, it is clear ZmoQ>… Cnamoº$ {ddoMZm go ñnï> h¡ {H$ \$m`ZoÝg
that finance functions have great significance gå~ÝYr H$m`© {H$gr \$_© Ho$ {c`o gdm©{YH$ _hÎd aIVo
and are directly concerned with firm's decision h¢ŸVWm \$_© Ho$ {ZU©`m| go grYo {Za§Va g§nH©$ _| ahVo h¢Ÿ&
continuously. Finance functions have influence \$m`ZoÝg gå~ÝYr H$m`m] H$m à^md \$_© Ho$ CËnmXZ,
on production, marketing and other functions _mH}$qQ>J d AÝ` H$m`m] na hmoVm h¡Ÿ& \$m`ZoÝg gå~ÝYr