Financial management Essay Example | Topics and Well Written Essays - 2000 words

Financial management - Essay ExampleDividends ar the consequences of performances actual or expected. The grocery stores knowledge with guess to the shift in dividend form _or_ system of government provide have impact on the investment decisions of the investors which will reflect in stock prices. Therefore, dividend per se is not the dominant determinant factor, but it constitute as a signal to the performance of the company when it is changed and this perception is the key driver for performance of the stocks in the markets. Dividend policy The dividend decisions are guided by various factors relating to the business concern at the discretion of the management. Similarly, the motives behind the change in dividend policies could be influenced by taxation policies of the government, influence of major shareholders in dividend decisions, structure of the management, retention of management control, fulfilling the expectations of the market or simply meeting the guidelines alr eady given. On many occasions the process of price discovery in market is frustrated by moolah management or insider trading in relation to declaration of dividends. However the fundamental factors governing dividend policy in a company are stability in sugar, growth in profitability, opportunities available for reinvestment of the wampum made based on marginal efficiency of additional outstanding and type or objet dart of the shareholders and their expectations. However, any increase in the rate of dividends is generally appreciated by the market and the prices of the shares react positively to such announcements. For a meaningful analysis of dividend policy the dividend history of the companies in relation to earnings (EPS) and dividend admit over years, leverage or debt to equity ratio and the management policy in distribution of earnings conducts to be studied. Also, comparison with the industry standards will reveal the relative position of the company in the industry. D ifferent types of investors will react differently to the dividend policy. For example, retired people expect consistency in payment of dividends since they need regular income from their investments in the absence of earnings from employment or other sources. Therefore, any negative change in dividend payout will adversely affect the stock prices. Relevance of dividends to market value of the stocks highly jibe in such cases. Determinants of dividend policy The question of whether a companys dividend policy is relevant or irrelevant to its market value has implications in firming up the dividend policy of a company. Primarily the question has to be analyzed with regard to the motives behind the changes in dividend policy from the perspective of the management of the companies taking into account the market expectations, future capital investments proposed, the earnings guidance already given and the tax considerations involved. The companies have to formulate their dividend polici es in tune with the demand for the development of the business since the shareholders are the most important stakeholders in the business. Future expansions, mergers & acquisitions could be easily managed if the shareholders impudence on the company is maintained at the highest level. It is very important to note that the policy does not digest primarily on distribution of dividends per se. It is