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Question : 9
Total: 13
State any four factors that affect the decision related to how much profit is to be distributed and how much profit is to be retained in the business.
Solution:
Following are the factors Affecting Dividend Decisions:
(i) Amount of Earnings: Dividends are paid out of profits, so earning of a company is very important factor in determining dividend decision. Companies having high and stable earning could declare high rate of dividends.
(ii) Stability of Dividends: Companies generally follow the policy of stable dividend. The dividend per share is not altered in case increase in earnings is small or of temporary nature.
(iii) Growth Opportunities: In case there are good, growth prospects for the company in the near future, then it will retain its earning and thus, no or less dividend will be declared.
(iv) Cash Flow Positions: The payment of dividends involve outflow of cash and thus, availability of adequate cash is required for declaration of dividends.
(v) Shareholders preference: While deciding about dividend the preference of shareholders is also taken into account. If shareholders desire for dividend then company may go for declaring the same.
(vi) Stability of Dividend: Some companies follow a stable dividend policy as it has better impact on shareholders and improves the reputation of company in the share market.
(i) Amount of Earnings: Dividends are paid out of profits, so earning of a company is very important factor in determining dividend decision. Companies having high and stable earning could declare high rate of dividends.
(ii) Stability of Dividends: Companies generally follow the policy of stable dividend. The dividend per share is not altered in case increase in earnings is small or of temporary nature.
(iii) Growth Opportunities: In case there are good, growth prospects for the company in the near future, then it will retain its earning and thus, no or less dividend will be declared.
(iv) Cash Flow Positions: The payment of dividends involve outflow of cash and thus, availability of adequate cash is required for declaration of dividends.
(v) Shareholders preference: While deciding about dividend the preference of shareholders is also taken into account. If shareholders desire for dividend then company may go for declaring the same.
(vi) Stability of Dividend: Some companies follow a stable dividend policy as it has better impact on shareholders and improves the reputation of company in the share market.
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