Business Studies

Abhishek Ltd'. is manufacturing cotton clothes. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future. It is a well managed oranisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments.
It has taken a loan of Rs 50 lakhs from I.C.I.C.I. Bank and is bound by certain restrictions on the payment of dividend according to the terms of the loan agreement.
The above discussion about the company leads to various factors which decide how much of the profits should retained and how much has to be distributed by the company.
Quoting the lines from the above discussion, identify and explain any four such factors.


SOLUTION
  As per the question, the decision that is discussed above is 'dividend decision'. 
Quoting for dividend decision - "how much of the profits should be retained and how much has to be distributed by the company"
 Dividend decision of a company deals with deciding what portion of the profits is to be distributed as dividends between the shareholders and what portion is to be kept as retained earnings. The following are the factors that affect the dividend decision:
 Quote 1: "It has been consistently earning good profits for many years." Factor - Stable Earnings. When a company has a stable and a smooth earning, it is in a position to distribute higher dividends as compared to the companies who have an unstable earning. In other words, a company having consistent and stable earnings can distribute higher amount of dividends. 
Quote 2: "This year too, it has been able to generate enough profits." Factor - Amount of Earnings: A firm pays dividends out of its current and past earnings. This implies that earnings play a key role in the dividend decision. A company having higher earnings will be in a position to pay a higher amount of dividend to its shareholders. In contrast to this, a company having low or limited earnings would distribute low dividends. 
quote 3 ; There is availability of enough cash in the company and good prospects for growth in future'.
factor - Growth prospects; companies aiming for a higher growth level or expansion of operation retain a higher portion of the earning with themselves for re-investment. Thus the dividend of such companies are smaller as compared to the companies with lower growth opportunities. 
quote 4; '' it has many shareholder who prefer to received income from their investment."
factor - preference of the shareholder. A company must keep in mind the preference of the shareholder while distributing the dividends. for instance, if the shareholder prefer at least a certain amount of dividend, then the company is likely to declare the same.
View Full Answer

Its FREE, you're just one step away

Create your Digital Resume For FREE on your name's sub domain "yourname.wcard.io". Register Here!


Subjective Medium Published on 18th 09, 2020
Next Question
Questions 203525
Subjects 9
Chapters 126
Enrolled Students 126
Enroll Now For FREE

Realted Questions

Q1 Single Correct Medium
A Multinational Company is an organisation doing business in more than ________.
  • A. one product
  • B. one market
  • C. one service
  • D. one country

Asked in: Business Studies - Organising


1 Verified Answer | Published on 18th 09, 2020

View Answer
Q2 Single Correct Medium
Which of the following is NOT true about power?
  • A. Power requires no formal position
  • B. Power works both ways - downward and upward
  • C. Formal authority is a type of power
  • D. Power is a narrow term compared to authority

Asked in: Business Studies - Organising


1 Verified Answer | Published on 18th 09, 2020

View Answer
Q3 Single Correct Medium
Which basic model combination organizational structure is followed by all of the organizations?
  • A. Structural or organic
  • B. Mechanistic or structural
  • C. Rigid or linear
  • D. Organic or mechanistic

Asked in: Business Studies - Organising


1 Verified Answer | Published on 18th 09, 2020

View Answer
Q4 Single Correct Medium
Drucker assigns three jobs to management ____________.
  • A. managing a employees; managing managers; and managing accounting work.
  • B. managing a business; managing creditors; and managing accounting work.
  • C. managing a business; managing creditors; managing managers.
  • D. managing a business; managing managers; and managing workers and work.

Asked in: Business Studies - Organising


1 Verified Answer | Published on 18th 09, 2020

View Answer
Q5 Subjective Medium
Kiran Industries is a company manufacturing office furniture. The company chose to diversify its operations to improve its growth potential and increase market share. As the project was important many alternatives were generated for the purpose and were thoroughly discussed amongst the members of the organisation. After evaluating the various alternatives Sukhvinder, the Managing Director of the company decided that they should add 'Home Interiors and Furnishings' as a new line of business activity.
(a) Name the framework, which the diversified organisation should adopt, to enable it to cope up with the emerging complexity? Give one reason in support of your answer.
(b) State any two limitations of this framework. 

Asked in: Business Studies - Organising


1 Verified Answer | Published on 18th 09, 2020

View Answer