DIVIDEND POLICY
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A Dividend may be defined as divisible profits which are distributed amongst the members of a company in proportion to their shares in a manner as is prescribed by law.
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If all these question bothers you before developing your company’s corporate strategy/value creation strategy then you must see your New Year’s
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1. Capitalization refers to the total amount of long-term funds available to a company including share capital, reserves, debentures, and long-term loans.
2. There are two main theories of capitalization - the cost theory which is based on the cost of assets, and the earnings theory which is based on expected earnings and rate of return.
3. Overcapitalization occurs when a company's capital exceeds what is needed based on its earning capacity, resulting in a lower return on capital. Undercapitalization is the opposite, where the capital is too low relative to earning capacity. Maintaining fair capitalization is ideal for a company.
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This document discusses dividend policy and the various theories around it. It defines dividends and discusses Walter's model and Gordon's model, which propose that dividend policy affects firm value. It also covers the irrelevance theories of Modigliani-Miller and the traditional approach, which argue that dividend policy does not impact value. The document provides formulas for the different models and discusses their assumptions and criticisms.
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Corporate finance deals with how corporations raise and manage financial resources. It involves making investment, financing, and dividend decisions to maximize shareholder wealth while balancing risks and rewards. The discipline draws on economics, accounting, and mathematics to analyze financial statements and allocate capital. It also addresses agency problems that arise from conflicts of interest between shareholders and managers or creditors. Corporate finance has evolved with industrialization and technological changes, developing quantitative tools and theories to improve capital market efficiency and firm value.
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The document summarizes William Sharpe's single index model from 1963, which simplified Harry Markowitz's earlier portfolio selection model. The single index model assumes that only one macroeconomic factor, represented by a market index like the S&P 500, influences the systematic risk of stock returns. It expresses the return of a security as the sum of its expected excess return, its sensitivity to market movements, and random error. This allows estimating portfolio variance and minimum variance portfolios based only on market risk rather than the full covariance matrix.
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This document discusses different methods for evaluating portfolio performance:
- Portfolio managers evaluate performance to identify strengths and weaknesses and improve strategies. Evaluation provides feedback in the final stage of the investment process.
- Sharpe's index measures risk-adjusted return by comparing the portfolio's excess return over the risk-free rate to the total risk in the portfolio. A higher index indicates better performance.
- Treynor's index also measures risk-adjusted return but uses systematic risk (beta) rather than total risk. A higher Treynor index means more risk premium earned per unit of market risk.
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This document discusses book building, which is a process used to determine the price of shares being offered during an initial public offering (IPO). Book building involves generating demand from investors who bid for shares at different price levels within a given price range. The final share price is set based on the demand and bids received. The key aspects covered include the definition of book building, an example of how the bidding process works, characteristics of book building like using a price floor and bands, the steps in the book building process, and the types of book building (75% or 100% of shares allocated this way).
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The document discusses several theories on corporate dividend policies:
1. Dividend relevance theories argue that a firm's dividend policy impacts its value. Walter's and Gordon's models show how value is determined based on factors like earnings, dividends, growth rates, and costs of capital.
2. Dividend irrelevance theories, proposed by Modigliani and Miller, state that a firm's value depends only on its investment policy, not its dividend policy.
3. The bird-in-hand theory suggests that even in situations of equal growth rates and costs of capital, investors prefer dividends in-hand to future capital gains due to uncertainty.
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1) Capital budgeting is the process of planning for capital expenditures that are expected to generate returns over multiple years. It involves evaluating potential long-term investment projects and determining which ones to undertake.
2) The document discusses various capital budgeting techniques for evaluating projects, including payback period, accounting rate of return, net present value, and internal rate of return. It also outlines the typical capital budgeting process of identifying, screening, evaluating, approving, implementing, and reviewing projects.
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Business economics deals with the application of economic theories and principles to solve business problems and aid management decision making. It involves using economic methodology to analyze issues like demand forecasting, cost analysis, profit analysis, and capital management at the level of individual firms. The study of business economics has both theoretical and practical significance. It helps understand economic behavior, assess economic performance, aid in economic planning and policymaking, and solve problems faced by various groups like businessmen, bankers, and policymakers. Overall, business economics integrates economic theory with business practice to facilitate optimal business decision making and planning.
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The document discusses various methods for valuing common stock, including calculating the present value of future dividends using the dividend discount model. It outlines three cases for the pattern of future dividends: zero growth, constant growth, and non-constant growth. Key valuation formulas and an example are provided. Additional stock features and components of the required return such as the dividend yield and capital gains yield are also examined.
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Behavioral finance is a field that combines psychology and traditional finance to explain irrational financial behaviors. Standard finance theories failed to explain market anomalies like crashes and bubbles. Behavioral finance proposes that people are not perfectly rational due to cognitive biases and emotions. Some biases explored in behavioral finance include prospect theory, which shows people weigh potential losses more than equivalent gains; anchoring, where recent prices unduly influence investment decisions; and overconfidence, which causes investors to underestimate risks. By understanding these biases, behavioral finance provides frameworks to better understand unpredictable market movements.
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Capital structure refers to the composition of long-term capital from sources like loans, reserves, shares, and bonds. It represents the relationship between different types of long-term capital. A proper capital structure maximizes firm value, minimizes costs, and increases share prices. It also allows firms to take advantage of new investment opportunities and supports country growth. Factors that affect capital structure include financial leverage, operating leverage, earnings per share, costs of different sources, growth and stability of sales, flexibility, nature and size of firm, cash flows, control, market conditions, asset structure, financing purpose, and period of finance. Advantages of debt include amplifying returns, greater control and flexibility, while equity provides flexibility in raising funds
Capital structure-theories
This presentation is an overview of Capital Structure Theories.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
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The document outlines the 4 main steps of financial planning:
1. Determine your current financial situation by calculating your net worth and analyzing cash flow
2. Set financial goals both short, medium, and long-term which include paying off debt, saving for retirement and children's education
3. Develop a financial plan that is flexible, provides liquidity, and minimizes taxes
4. Monitor your progress towards goals by regularly reviewing your budget, investment returns, taxes, inflation, and making adjustments if needed.
Circular flow of Income -Two sector model
This document provides an overview of circular flow models in economics. It begins with defining the circular flow of income as the circulation of money, goods, and services between producers and consumers. It then covers the two sector model which includes households and firms exchanging money for goods. It introduces the three sector model which adds the government sector that collects taxes, spends on goods/services, and provides transfers. Key points are explained through diagrams and the document signifies how these models underpin national accounting and macroeconomics.
Financial Management
The document discusses various aspects of financial management including its objectives, scope, sources of finance, and types of shares. Financial management deals with procuring and utilizing funds in a balanced manner to maximize profit and returns. The basic objectives are profit maximization and maintaining liquidity, while other objectives include fair returns, building reserves, and ensuring efficiency. Sources of finance discussed include equity shares, preference shares, debentures, and retained earnings.
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A Presentation on Scope of Business Economics.
The Presentation is kept short and only for a general introduction on the subject,
Bonus shares
Bonus shares are additional free shares given to existing shareholders based on the number of shares owned, representing a company's accumulated retained earnings. Companies issue bonus shares to increase liquidity and shareholder participation when earnings per share rise substantially. For example, a company with Rs. 10,000 profit and 100 shares has an earnings per share of Rs. 100. To lower the price per share for retail investors and improve liquidity, the company may declare a 1:4 bonus issue, increasing shares to 500. This lowers the price per share to Rs. 20 while maintaining the same total market value. Bonus shares are accounted for by transferring reserves to share capital.
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The document discusses dividend policy and models used in Indian corporate sectors. It provides an overview of Walter's model, Gordon's model, and the Modigliani-Miller model. Walter's model shows the relationship between return on investment, cost of equity, and dividend payout ratio. Gordon's model incorporates a growth rate determined by retention ratio and return on investment. The Modigliani-Miller theorem states that dividend policy does not impact firm value if markets are efficient. The document also discusses typical Indian corporate dividend practices and factors affecting dividend policy decisions.
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This document discusses dividend policy and the various theories around it. It defines dividends and discusses Walter's model and Gordon's model, which propose that dividend policy affects firm value. It also covers the irrelevance theories of Modigliani-Miller and the traditional approach, which argue that dividend policy does not impact value. The document provides formulas for the different models and discusses their assumptions and criticisms.
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This document discusses theories related to corporate dividend decisions and their impact on firm value. It outlines two broad categories of theories: theories of irrelevance, which argue dividend decisions do not affect firm value, and theories of relevance, which argue they do. Key theories discussed include the residual approach, Modigliani-Miller approach, Walter's model, and Gordon's model. The document analyzes the assumptions and conclusions of each theory regarding how different dividend policies impact firm value under varying conditions.
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Week 6 dividend policy
Here are the steps to solve this problem using the Walter model:
(i) Payout ratio = 40%
EPS = $4
DPS = 40% of $4 = $1.60
Retained earnings per share = EPS - DPS = $4 - $1.60 = $2.40
Using the Walter model formula:
P = D + r(E-D)/k
Plugging in the values:
P = $1.60 + 0.18(2.40)/0.15
P = $1.60 + $1.44
P = $3.04
(ii) Payout ratio = 50%
DPS
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This document discusses dividend decision and theories. It defines dividends as the portion of profits distributed to shareholders. There are different types of dividends such as interim, final, stock, and scrip dividends. Dividend decision is influenced by legal provisions and is treated as a financing decision aimed at wealth maximization. The document discusses various dividend theories including the residual dividend policy, Modigliani-Miller's irrelevance theory, Walter's model, Gordon's model, and their underlying assumptions. It also covers factors influencing dividend policy and different approaches a company can take to its dividend policy.
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The document discusses various models and theories related to dividend decision-making, including:
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This document discusses dividend policy and several models for determining dividend policy, including the Walter model, Gordon model, and Modigliani-Miller model. The Walter model recommends that dividend policy influences share price and firm value. The Gordon model states that investors prefer constant dividend income. The Modigliani-Miller model suggests that dividend policy does not impact firm valuation if capital markets are perfect. Each model makes assumptions about financing, growth rates, and taxes. Formulas are provided for determining share price based on dividends, earnings, and cost of capital under each model.
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The document provides an overview of finance including definitions, categories, functions, goals, principles, and key concepts such as interest rates, cost of equity, and the term structure of interest rates. Finance is defined as the management of money, and involves how firms raise capital, invest for profit, and decide whether to reinvest or distribute profits. The categories of finance discussed are personal, corporate, and public finance. Key principles covered include risk-return tradeoff, time value of money, and diversification. Methods for calculating cost of equity such as dividend yield and CAPM are also summarized.
Dividendpolicy by pakistani studend
The document discusses dividend and retention policy. It defines dividends and examines different theories on dividend policy, including Walter's model, Gordon's model, Modigliani-Miller's irrelevance theory, and the traditional approach. Key points covered include the assumptions and formulas of different models and how they assess the impact of dividends on firm value. The document also analyzes factors influencing dividend policy decisions.
Dividend Decisions in Financial Management
This document discusses dividend policy and theories related to dividends. It begins by explaining the concept of ploughing back profits or retaining earnings for reinvestment purposes. It then discusses different forms of dividends and factors that affect dividend policy decisions. Several theories of dividends are presented, including the irrelevance approach of Miller and Modigliani, the residual theory, Walter's model, and Gordon's model. The document provides illustrations and discusses management views on maintaining consistent dividends.
Chapter 23 (2).ppt
This document discusses dividend theories and models for determining stock prices, including Walter's model, Gordon's model, and the MM hypothesis.
Walter's model supports the view that a firm's dividend policy impacts its value and divides firms into growth, normal, and declining categories based on return and cost of capital. Gordon's model says a firm's share price depends on its dividend payout ratio based on assumptions about earnings growth and retention. The MM hypothesis argues that the value of a firm is determined by its earnings power and risk, not its dividend policy, based on assumptions of perfect capital markets and no taxes.
How to valuate your company, with Capricorn Venture Partners (Finance for Sta...
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Finance for Startups event, May 28, 2013, @ICAB Brussels
How to valuate your company, with Capricorn Venture Partners (Finance for Sta...
How to valuate your company, with Capricorn Venture Partners
Finance for Startups event, May 28, 2013, @ICAB Brussels
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RIGHT ISSUES
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. In a right offering, each shareholder receives the first right to subscribe to the shares at the discount as compared to the prevailing share price.
BONUS ISSUE
A bonus issue is a stock dividend, allotted by the company to reward the existing shareholders without receiving any additional payment from them, it is known as issue of bonus shares
LETTER OF CREDIT
Documentary credit is an arrangement under which the bank, at the request of the buyer or on its own, undertakes to make payment to the seller-provided specific Documents are submitted.
MONEY MARKET
A market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market
FINANCIAL PLANNING
This document discusses financial planning and forecasting. It defines financial planning as a systematic process of determining financial objectives, policies, and procedures related to a firm's estimated financial requirements and financing patterns. Financial forecasting is described as using past financial statements, funds flow statements, ratios, and industry economic conditions to project a firm's future financial condition. Key aspects of financial planning and forecasting include determining objectives, formulating policies, developing procedures, assessing factors that influence financing decisions, and creating pro forma financial statements and cash budgets to estimate future needs and performance.
FUND FLOW STATEMENT
Fund flow statement is a statement that compares the two balance sheets by analyzing the sources of funds (debt and equity capital) and the application of funds (assets) and its reasons for any differences.
COST OF CAPITAL
This document discusses the concept of cost of capital and how to measure it. It defines cost of capital as the minimum rate of return a company must earn on invested funds to prevent a decrease in shareholder value. The document then discusses how to calculate the cost of various components of capital structure including:
- Preference share capital
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- Equity share capital
- Retained earnings
It provides formulas and examples for calculating the cost of each component based on factors like dividend/interest rates, issue price, tax rates, redemption value, and growth rates. The weighted average cost of capital is also introduced as a way to incorporate different costs of all components of a firm's capital structure.
CAPITAL MARKET
The capital market connects the surplus units with the deficit units. It means that the funds are channelized from those who have excess capital to those who need it.
CAPITAL INVESTMENT DECISION
A capital investment is defined as the procurement of money by a company to pursue its objectives, such as continuing or growing operations. The term can also refer to a company's acquisition of long-term assets such as real estate, manufacturing plants and machinery.
CAPITAL BUDGETING
Capital budgeting refers to the total process of generating, evaluating, selecting and follow up of capital expenditure alternative
PROJECT CLASSIFICATION, IDENTIFICATION, FORMULATION
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VENTURE CAPITAL
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PROJECT PLANNING
Dr. Richa Singhal presented information on project planning techniques. The document outlined various components of an effective project plan including work breakdown structure, work packages, scheduling methods like bar charts, RAT/CAT schedules and network schedules. It emphasized the importance of the project master plan which defines the overall scope and contains sections on management, organization, technical details and economics. Project planning allows for direction, control, motivation and efficient resource use which helps ensure project success.
PROJECT ORGANIZATION
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The document discusses the various phases of a project life cycle:
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2. Project formulation phase involves examining the technical, economic, and financial aspects of selected projects through preliminary and detailed project reports.
3. Project appraisal phase involves critically evaluating projects from various angles such as market, technical, financial, economic, and organizational viability.
4. Project execution phase involves implementing approved projects through activities like engineering designs, contracting, construction, recruitment, and commissioning.
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How Non-Banking Financial Companies Empower Startups With Venture Debt Financing
How Non-Banking Financial Companies Empower Startups With Venture Debt Financing
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"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.在线办理(GU毕业证书)美国贡萨加大学毕业证学历证书一模一样
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2:同时对留学生所学专业登记给予评定
3:国家专业人才认证中心颁发入库证书
4:这个认证书并且可以归档倒地方
5:凡事获得留信网入网的信息将会逐步更新到个人身份内，将在公安局网内查询个人身份证信息后，同步读取人才网入库信息
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The Rise of Generative AI in Finance: Reshaping the Industry with Synthetic Data
In this presentation, we will explore the rise of generative AI in finance and its potential to reshape the industry. We will discuss how generative AI can be used to develop new products, combat fraud, and revolutionize risk management. Finally, we will address some of the ethical considerations and challenges associated with this powerful technology.
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原版一模一样【微信：741003700 】【美国迈阿密大学牛津分校毕业证文凭证书】【微信：741003700 】学位证，留信认证（真实可查，永久存档）offer、雅思、外壳等材料/诚信可靠,可直接看成品样本，帮您解决无法毕业带来的各种难题！外壳，原版制作，诚信可靠，可直接看成品样本。行业标杆！精益求精，诚心合作，真诚制作！多年品质 ,按需精细制作，24小时接单,全套进口原装设备。十五年致力于帮助留学生解决难题，包您满意。
本公司拥有海外各大学样板无数，能完美还原海外各大学 Bachelor Diploma degree, Master Degree Diploma
1:1完美还原海外各大学毕业材料上的工艺：水印，阴影底纹，钢印LOGO烫金烫银，LOGO烫金烫银复合重叠。文字图案浮雕、激光镭射、紫外荧光、温感、复印防伪等防伪工艺。材料咨询办理、认证咨询办理请加学历顾问Q/微741003700
留信网认证的作用:
1:该专业认证可证明留学生真实身份
2:同时对留学生所学专业登记给予评定
3:国家专业人才认证中心颁发入库证书
4:这个认证书并且可以归档倒地方
5:凡事获得留信网入网的信息将会逐步更新到个人身份内，将在公安局网内查询个人身份证信息后，同步读取人才网入库信息
6:个人职称评审加20分
7:个人信誉贷款加10分
8:在国家人才网主办的国家网络招聘大会中纳入资料，供国家高端企业选择人才
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DIVIDEND POLICY
- 1. Dr. Richa Singhal Associate Professor,EAFM S.S. Jain Subodh P.G.College, jaipur 1
- 2. CONTENT • WHAT IS DIVIDEND • TYPES OF DIVIDEND • DIVIDEND POLICY • TYPES OF DIVIDEND POLICY • SOUND DIVIDEND POLICY • FACTORS AFFECTING DIVIDEND POLICY • IMPORTANCE OF DIVIDEND POLICY • DIVIDEND MODELS • Walter Model • Gordon Model • Modigliani and Miller Model • Residual Theory of Dividends 2
- 3. 3 A Dividend may be defined as divisible profits which are distributed amongst the members of a company in proportion to their shares in a manner as is prescribed by law. • Sufficient profits in the company • Recommendation of the Board of Directors. • An acceptance of the shareholders in the annual general meeting.
- 4. 4 Preference Dividend Equity Dividend Interim Dividend Regular Dividend Cash Dividend Stock Dividend or Bonus Share Scrip or Bond dividend
- 5. Dividend Policy can be defined as the plan of action adopted by its directors whenever the dividend decision is to be made. It determines the division of earnings between payout to shareholders and retained earnings. 5
- 6. 6 STABLE DIVIDEND POLICY REGULAR DIVIDEND POLICY IRREGULAR DIVIDEND POLICY NO DIVIDEND POLICY
- 7. • Distribution of Dividend in cash • Initially Lower Dividend • Gradual Increase in Dividend • Stability • Dividend Out of Earned Profits 7
- 8. 8 Internal • Nature of Earnings • Future funds requirements • Liquidity of funds • Shareholders Desire • Control motive External • General State of Economy • Access to Capital Market • Legal Restrictions • Contraclinald Restrictions • Government’s Economic and Tax Policies
- 9. 9 DEVELOP SHAREHOLDER’S TRUST INFLUENCE INSTITUTIONAL INVETORS FUTURE PROSPECTS EQUITY EVAUATION MARKET VALUE STATBILITY OF SHARES MARKET FOR PREFERENCE SHARES AND DEBENTURES DEGREE OF CONTROL RAISING OF SURPLUS FUNDS TAX ADVANTAGE
- 10. Dividend Policy is relevant: • Walter Model • Gordon Model Dividend Policy is irrelevant: • Modigliani and Miller Model • Residual Theory of Dividends 10
- 11. Walter’s model is based on the following assumptions: • Internal financing • Constant return and cost of capital • 100 per cent payout or retention • Constant EPS and DIV • Infinite time Optimum Payout Ratio • Growth Firms ( r > Ke) –Retain all earnings • Normal Firms ( r < Ke) –Distribute all earnings • Declining Firms ( r = Ke) –No effect 11
- 12. 12 P = D + r (E-D) / Ke Ke Ke
- 13. 13
- 14. • No external financing • Constant return, r • Constant opportunity cost of capital, k 14
- 15. Gordon’s model is based on the following assumptions: • All-equity firm • No external financing • Constant return • Constant cost of capital • Perpetual earnings • No taxes • Constant retention • Cost of capital greater than growth rate 15
- 16. Where: P= Price per share D= Expected dividend per share E= Earnings per share Ke = Cost of capital or capitalization rate B= retention ratio (1- payout ratio) Br = g = Growth rate (r * b) 16 P = D Ke - G
- 17. 17
- 18. • The constant dividend growth and earnings growth is a fallacy. • The investors will buy and hold the shares for an indefinite period of time is a false assumption. • The model ignores capital gains, allowance for corporate and personal taxation. • The diminishing marginal efficiency of investments is ignored. • The effect of change in the firm’s risk class and its effect on firm’s cost of capital is ignored. 18
- 19. Under a perfect market situation, The dividend policy of a firm is irrelevant It does not affect the value of the firm. They argue that the value of the firm depends on firm earnings which results from its investment policy. Thus, when investment decision of the firm is given, dividend decision is of no significance. ASSUMPTIONS:- • Perfect capital markets • No taxes • Fixed Investment policy • No risk • No external funds 19
- 20. • Po= D1 + P1 / 1 + Ke • P1= Po(1+Ke)-D1 • nPo= (n+m) P1-(1-X)/ I+Ke Po = Market price per share at the beginning of the period or prevailing market price of a share. D1= Dividend received at the end of the period P1= Market price at the end of the period Ke= Cost of equity capital n= no. of shares outstanding at the beginning m= no. of new shares to be issued I= total net profit 20
- 21. • No perfect market • Taxes with different rates • Presence of Flotation Costs • Uncertainty (future earnings and investment opportunities) 21
- 22. Residual Theory of Dividends One of the schools of thought, the residual theory, suggests that the dividend paid by a firm is viewed as a residual, i.e. the amount remaining or leftover after all acceptable investment opportunities have been considered and undertaken. It believes that external financing is not available when required by the firm. It states that dividend fluctuations do not change the perception of the shareholders when a company has profitable investment opportunities. 22
- 23. THANK YOU 23