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Dividend Policies of Rolls Royce Holdings plc

   

Added on  2020-01-16

17 Pages4707 Words646 Views
CORPORATE FINANCE

Table of ContentsPart A: Dividend Policy Theories and Dividend Policies of Rolls Royce Holdings plc:...................................3The critical importance of Dividend decisions to an organization:..........................................................3Review of the Dividend policy and Performance of Rolls Royce Holdings Plc for the last 5 years:..........4Dividend policy Theories and Recommendation of the future Dividend policy for Rolls-Royce Holdings Plc:...........................................................................................................................................................6Recommendation of Dividend Policy for Rolls Royce Holdings plc:.........................................................8Part B: Foreign Exchange Risk and the Risk mitigation of it by Rolls Royce Holding Plc...............................9Identification of three types of foreign exchange risk and critical discussion on their relative importance..............................................................................................................................................9Critical evaluation of four main internal hedging strategies and assessment of their relevance to Rolls Royce operating in the defence industry...............................................................................................10Analysis of the application of two basic external hedging techniques: forward and money market hedges...................................................................................................................................................12References.................................................................................................................................................152 | P a g e

Part A: Dividend Policy Theories and Dividend Policies of Rolls RoyceHoldings plc:The critical importance of Dividend decisions to an organization: Dividend Policy is basically decision of the management of the firm regarding the aspect of thedistribution of the profit to the equity shareholder s of the firm. Though it is no mandatory for amanagement of the firm to pay dividend to the valued shareholder of the firm, but in-depthresearch that has been conducted in the field of financial management suggested that there hasbeen strong linkage between the various performance indicator of the firm with that of thedividend policy of the organization (Hussainey et al, 2011). Essentially the dividend policy of thefirm, can adversely impact the valuation of the firm, the share price of the firm, credit ratings andgrowth and can also act as a major determinants of the overall value factors of the firm. It isessential for a firm to have a highly structured dividend policy as it helps in gaining theconfidence of the shareholder of the firm. So with a strict and consistent dividend policy, a firmmay use a large amount of the profit as retained profit which can be used further for the growthof the firm and upgradation of the entire system which helps in generating better profitability andensure sustainability of the firm. Moreover, when a firm pays a high dividend on consistent basis, investors or shareholder couldable to generate high amount of return apart from the capital appreciation of the shares. This inturn ensures to have a high faith and trust in the shares of the company which ultimately reflectsin the valuation of the firm and confidence on the stock. It is also at the same time essential tomention that with high dividend also reduces the retained earnings of the firm, and therefore thegrowth of the firm may also get reduced due to unavailability of financial resource due toreduction in retained profit (Mirza and Azfa, 2010). Therefore it is absolutely essential to have astable dividend policy which will ensure and meet the shareholder’s expectation as well as helpthe firm to keep them with adequate financial resource for attaining future financial gains. 3 | P a g e

So from the overall analysis it could be ascertained that dividend policy is one of the mostimportant policy which a firm should undertake with sheer as it helps in building confidence andhenReview of the Dividend policy and Performance of Rolls Royce Holdings Plc forthe last 5 years: \Rolls Royce Holdings Plc is one of most renowned UK based multinational company whichowns the iconic brand of Rolls Royce automobile. The company is also involved in the indesigning, manufacturing and distribution of power systems for the aviation industry and is alsoone of the largest manufacturer of aircraft engines. The company is also actively involved inmarine propulsion and also holds large orders for various defence equipments. Rolls Royce Holdings Plc being a listed company in the London Stock Exchange and also beingpublicly limited company has shareholding by investors for its shares. Therefore the companypays the dividends for its shareholding at it feels necessary by the management of the company.From the close observation of the annual report of the company , it is evident that the companypays dividends on regular basis. Moreover, the company also declares interim dividend apartfrom the final dividend in last 5 years. The dividend payment that is provided by themanagements of the company to its shareholder’s are depicted below: Dividend Payments per share of Rolls Royce Holdings Plc 20152014201320122011Final Dividend payments per share (in pence)7.114.113.411.910.6Interim Dividend Payment per share (in pence) 9.2798.67.66.9Total Dividend Per Share (in Pence)16.3723.12219.517.5It is evident from the above table which reflects the dividend payments of Rolls RoyceHoldings Plc that the company provides dividends on regular basis in the form of final andinterim dividends. Therefore it can be rightly inferred that the company follows a consistentpayment of dividend from the profits they earn from business operation. Moreover, from a closeobservation it is evident that the dividend of the firm, has reduced in the year 2015 as the4 | P a g e

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