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The role of financial management in the organization

   

Added on  2020-02-05

10 Pages2513 Words326 Views
FINANCIALMANAGEMENT1 | P a g e

TABLE OF CONTENTSINTRODUCTION......................................................................................................................1DIVIDEND POLICY.................................................................................................................1FINANCIAL MARKET............................................................................................................2FINANCIAL DERIVATIVES...................................................................................................4CONCLUSION..........................................................................................................................6REFERENCES...........................................................................................................................72 | P a g e

INTRODUCTIONFinancial management is the process of effective utilization of monetary resources.Present project report will explain the role of management of funds in the organization. Thisreport will discusses dividend policy, financial markets and derivatives for effective andefficient management of collected funds. DIVIDEND POLICYDividend policy is the combination of certain guidelines which companies have tofollow when they are distributing part of their profits to their shareholders (Deshmukh, Goel.and Howe, 2013). All the organizations generally do not allocate all their earnings asdividend to their investors so this policy assists managers to determine the amount oforganizational earnings to be paid to the shareholders. There are various types of dividendpolicy which have been described hereunder:Residual dividend policyThis policy is based on three key elements that are mentioned below:Target capital structure.Investment opportunity model.Cost of external capital.Initially, residual-dividend model primarily aims at deciding a target dividend payoutratio. Thereafter, managers determine the equity which will be needed to construct an optimalcapital structure (Renneboog and Szilagyi, 2015). Primarily, equity funds will be collectedthrough the use of retained earnings. Management decide optimal capital expenditures levelto manage their cost of capital. As per this policy, companies use their total earnings formeeting business operational as-well-as expansion expenditures and if any surplus is left thenit will be called as residual which will be use for dividend distribution. Henceforth, it seemsto be very useful in capital projects while its disadvantage is fluctuations in business earningsthat contribute to bring instability in dividend. Stable dividend policyThis policy overcomes with the limitation of residual dividend model because it helpsto maintain stability in dividend. Stability policy says that companies have to provide regularand stable dividend to the investors (Loudermilk, 2012). Henceforth, it reduces uncertainty inthe shareholders return. It is adopted by the organizations who attempt to share their earningswith the investors rather than retaining this for future purpose. 3 | P a g e

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