CHAPTER 1
INTRODUCTION
1.1 BACKGROUND OF STUDY
Dividend policy is one of the most crucially importance and the most debatable issues in the corporate finance and it still keeps on prominent place in both developed and emerging markets. In 2005, Brealey and Myers described that dividend policy as one of the top ten most difficult unsolved problems in financial economics. This description is consistent with a famous extract by Black (1976) who stated that “The harder we look at the dividend picture, the more it seems like a puzzle with pieces that don’t fit together”.
There are many studies shows that many factors that affects dividend payout ratio by variety industries with different countries. Even though many studies have been conducted, the result shows there are differences between industries as regards which factors that have an impact on dividend payouts.
According Amidu and Abor (2006) shows that dividend payout ratio of listed companies in Ghana Stock Exchange has significant relationship in profitability, cash flow, sale growth, tax and market-to-book value. However, at the end of the result shows that there are positive relationship between dividend payout ratio and profitability, cash flow and tax in Ghana Stock Exchange.
In spite of that, in 2008 by Anil and Kapoor in their findings has already attempted to analyze empirically the determinants of dividend payout ratio of the Indian Information Technology sector during a six-years period. They discovered that cash flows, corporate tax, sales growth and market-to-book value ratio do not explain the dividend policy in IT sector. But only liquidity is found to be significant and positive relationship between dividend payout ratio and Indian Information Technology...
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... will be obtained from various database websites.
Moreover, the data used in this study is only from the year of 2002 until 2013 from Employees Provident Fund’s annual reports. The result of the study will not exactly accurate for determining the factors that influence dividend payout ratios in Employees Provident Fund.
1.8 SUMMARY OF STUDY
This chapter has covered the introduction and background of the study which it explains the objective of this study. Understand the issues and problem in the problem statement. Research of the study and do the research questions that related with the study. Based on research question, do the research hypothesis and theory framework that includes independent variable and dependent variable. Which it’s also designed in the one section of this chapter. Determining the significant of the study and ended up by limitation of study.
Theoretically, it is the foundation of simpleness and reasoning for stock valuation as any cash payoff from company is entirely in form of dividends. However, in practice, this model require further hypothesis on company’ dividend payments, future interest rate and growth pattern. Therefore, it is assumed that the DDM model merely applies to evaluate roughly minor proportion of the value of company’ share price. Specifically, the JB HI-FI value obtained from the DDM is 30.65 higher than their actual currently trading share price 24.1; a different of 6.55, and then the stock is undervalued. Consequently, DMM is not applicable for stock price valuation in case of JB HI-FI since it is not an individual approach of stock
The dividends record from the period 2001 to date is shown in the table below. The company has made quarterly payments based on the presentation of their annual financial reports to the shareholders. The price per share has been increasing on average which is an expected positive return for the shareholders.
In response to the question set, I will go into detail of the study, consisting of the background, main hypotheses, as well the aims, procedure and results gathered from the study; explaining the four research methods chosen to investigate, furthering into the three methods actually tested.
We can see that in 1990 dividend payout ratio was increased sharply compare to the previous years. Also, we can see that FPL had a loss in 1990, but the company still increased dividend. Furthermore, in 1991 to 1993 dividend payout ratio was significantly high when compare to the historical data. These sharp changes ...
Dividends are the distribution of profits in the company. It depends on the type of dividend policy made by companies. Dividend policy will affect the behaviours and attitudes of investors towards the company. Many economists or financial experts have constructed different theories to interpret the effects of a dividend policy to the society. But these theories are contestable since they are not tested in the real world. Managers’ decision on determining the size and time of a company’s next dividend payment is also important for both companies and shareholders. They will affect the company to distribute an appropriate amount of dividends in a right time. This essay will discuss whether theories of dividend payment, such as the dividend irrelevance and signalling effects are applicable in the real world. It will then describe some key factors that managers should consider on deciding the time and size of a company’s next dividend payment. Finally, it will conclude with the significance of a company’s decision on dividend payments.
It also indicates that how much cash flow the company is getting for investing each dollar in equity position. From the above table it is indicated that the dividend yield is almost same for both the years i.e. 0.027 and 0.028. It means that for both the years the investors will be equally interested in investing making investment into coca cola. From the above table it is also observed that the dividend yield for coca cola and PepsiCo is almost the same which means that the investors will be equally interested in making investments in both
I have leant that ratio analysis offers better insight of a company’s financial position on the short-term and long-term basis. However, I would recommend that investor advice should be based on ratio analysis that considers ratios from several years. This will ensure that the investor is making an informed decision based on the company’s financial ratio performance trend.
The article Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy was written in 1968 by Edward I. Altman. The purpose of the article is to address the quality of ratio analysis as an analytical technique. At the time some academicians were moving away from ratio analysis and moving toward statistical analysis. The article attempted to determine if ratio analysis should be continued, eliminated and replaced by statistical analysis or serve together with statistical analysis as cofactors in financial analysis. The example case used by the article was the prediction of corporate bankruptcy.
Dividend is basically a certain percentage of profit paid out to the shareholders of a company against their investments, and hence acts as a return to them against the finance they provide to the firm through the purchase of shares. Dividends are distributed after payments of loan interest, and taxation. It is essentially the amount of dividend paid by a specific entity/ organization to its shareholder’s which determines the value of its shares.
Dividend decision is the determinants of the percentage of earnings to be paid by the company in cash to their shareholders as dividend and the percentage of earnings to be retained by it for financing its long-term growth. It means developing a dividend ...
Common stock yield (dividends yield) is actually highly important to a shareholder, as well as, to the company as "One of the simplest ways for companies to communicate financial well-being and shareholder value is to say "the dividend check is in the mail." ( Staff, I. (2003))
The ratios returns on investment (ROI) and return on equity (ROE) are two of the most popular measure of profitability of a company and, along with the P/E ratio, have the most significant value of any of the ratios. The DuPont Model expands on the ROI calculation by inserting sales and it's relationship to the companies' generation of profits and utilization of assets into the calculation. Additional profitability ratios include the price earnings ratio (P/E), the dividend payout and the dividend yield. The price earnings ratio helps to indicate to investor how expensive the shares of common stock of a firm are. Dividend yield is part of the stockholders ROI and is represented by the annual cash dividend. Dividend yields have historically been between 3% to 6% for common stock and 5% to 8% for preferred stock. Dividend payout ratio shows the proportion of the earnings paid to common shareholders. Dividend payout for manufacturing companies range from 30% to 50%, but can vary widely.
To make itself as valuable as possible to stock holders; an enterprise must choose the best combination of decisions on investment, financing and dividends. In any economy in which firms have the time preference, the time value of money is an important concept. Stockholders will pay more for an investment that promises returns over years 1 to 5 than they will pay for an investment that promises identical returns for years 6 through 10. Essentially one must determine if future benefits are sufficiently large to justify current outlays. The development of mathematical tools of the time value of money is important as the first step towards making capital allocating decisions (Malawi, 2008).
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
The research was designed using qualitative model based on exploratory design. This was done to facilitate multi-faceted study with a broader prospective. Basic percentage analysis was done to supplement qualitative analysis. The study was conducted with the help of a Questionnaire. To deepen the understanding data was collected from a variety of books, Internet web pages, and articles of different kinds conducted was descriptive in nature. Descriptive research includes survey and facilitating enquiries of different