Dividend Policy and Ratio Analysis of Maxis

This assignment analyzes Maxis Malaysia's dividend policy and financial performance. It critically evaluates the company's stated dividend policy against academic theories like Modigliani-Miller, Walter model, and Gordon model. The analysis also includes a ratio analysis of Maxis, examining key ratios such as net profit ratio, current ratio, price-earning ratio, debt-equity ratio, and inventory turnover ratio. The assignment concludes with an assessment of the company's financial health and investment prospects.

FINANCING

TABLE OF CONTENTS
Critical evaluation of company stated and actual dividend policy and academic theories on
dividend policy................................................................................................................................1
Ratio analysis of Maxis Malaysia....................................................................................................2
REFERENCES................................................................................................................................4
Figure 1Ratio analysis of Maxis Malaysia......................................................................................2

Critical evaluation of company stated and actual dividend policy and
academic theories on dividend policy
As per Mais Malaysia annual report company stated dividend policy is to put dividend
policy on table in board meeting. After majority of board members give approval on meeting in
annual general meeting dividend policy is communicated to shareholders. If shareholder pass
proposal dividend is declared for them (Maxis Berhad annual report 2015 page 20, 2017).
Company is followimg stable dividend policy from past few years and on approavl from board of
directors dividend is decleared to shareholders. There are multiple theories of dividend policies
and same are explained below.
 Moddigilani Miller theory: This theory state that thee is irrelevance of concept of
divided from point of view of shaeholder wealth (Hussainey, Oscar Mgbame and
Chijoke-Mgbame, 2011). As per this theory whether company declare dividend or not
share price remain unaffected and due to this reason even dividend amount decleared no
impact will be observed on share price. Thus, shareholder wealth remain unchanged.
 Walter model: This theory state that there is interlink between cost of capital and internal
rate of return. In case it is observed that internal rate of return exceed cost of capital
earning must be retained in business. Opposite to this if IRR is less then cost of capital
earning must be distributed among them. Thus, shareholder value can be increased only
when former one happened.
 Gordon model: This theory state that firm must avoid to pay dividend when it is in
growth phase as proceeds must be reinvest in business. In case firm is on declining phase
and less growth observed in business sufficient amount of dividend must be given to
shaeholders (Harada and Nguyen, 2011). In case IRR in business and cost of capital are
same share value remain unchanged and shareholders value remain unchanged.
It is anticipated that if dividned will be declared by the firm then in that case share price
will increase. It is observed in past time period that when dividend is declared share price
increased marginally by single point. Hence, it can be said that issue of dividend does not bring
any big change in dividend.
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Ratio analysis of Maxis Malaysia
Figure 1Ratio analysis of Maxis Malaysia
 Net profit ratio: Net profit ratio reflects that firm performance is improved to some
extent as value increased from 20% to 23%. It can be said that good control is maintained
on cost and due to this reason profitability increased.
 Current ratio: Current ratio value declined from 0.61 to 0.49 which means that there is
less amount of current assets in business to pay current liability on time. On this front
Maxis needs to do work.
 Price earning ratio: Firm PE ratio declined which means that in comparison to previous
year value of firm shares declined. This is not good for firm.
 Debt equity ratio: Debt equity ratio value declined from 2.09 to 1.85 which indicate that
debt proportion is almost high and slightly less then equity. There is need to further
reduce debt burden in business.
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 Inventory turnover ratio: Ratio value increased from 66 to 286 which means firm is
fastly converting inventory in to sales. Performance is good.
Firm shares are undervalued as it can be observed that industry PE ratio is 23 and current
PE ratio of firm is lower then industry PE ratio. Investors must not buy firm shares because debt
proportion is high in business and profit is increasing at slow rate. Currenrt ratio value is also
low and overall it can be said that performance is not good. Hence, investors must not make
investment in firm even firm shares are undervalued relative to peer firms. Thus, it is
recommended that investors must sold shares in market if they currently have and must not make
purchase decisions of relevant company shares if they currenly does not have its shares in
portfolio.
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REFERENCES
Books and Journals
Hussainey, K., Oscar Mgbame, C. and Chijoke-Mgbame, A.M., 2011. Dividend policy and share
price volatility: UK evidence. The Journal of risk finance. 12(1). pp.57-68.
Harada, K. and Nguyen, P., 2011. Ownership concentration and dividend policy in
Japan. Managerial Finance. 37(4). pp.362-379.
Online
Maxis Berhad annual report 2015 page 20, 2017. [Online]. Available through:<
http://maxis.listedcompany.com/misc/FlippingBook_PDF_Publisher/Publications/
HTML/Maxis_2015/files/assets/basic-html/page20.html>. [Accessed on 16th Octomber
2017].
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