Project Report on Corporate Finance Analysis

Added on - 29 Apr 2020

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Running Head: Corporate Finance1Project report: Corporate finance
Corporate Finance2ContentsIntroduction.......................................................................................................................3Analyze the dividend polices and analytical view............................................................3Low dividend payout or high dividend payout.................................................................4Analysis over dividend and share price relation...............................................................5Analytical evidences.........................................................................................................6Conclusion........................................................................................................................7References.........................................................................................................................9
Corporate Finance3Introduction:Dividend payment strategy and share price of a company is directly related to eachother. If the company would offer high dividend payout or low dividend payout than itdirectly affects the share price of a company. Mainly, both the policies which are highdividend policies and low dividend policies make the different impact over the performanceand the stock price of a company. Companies’ take the help of various dividend policies tomake a better decision about how much dividend must be paid to the investors to keep themsatisfied and attract other investors to invest into the operations of the company (Zhang,2012). Various dividend policies such as relevant theory, residual relevant theory, expectationtheory etc have been analyzed. Usually making a decision about the high or low dividend isimportant for an organization. An organization is required to look over various factors andthen make a better decision about the dividends. In this report, various dividend policies ofthe company have been analyzed and than a better decision have been made (FIRRER 2012).Analyze the dividend polices and analytical view:Dividend policies are mainly of two types which are relevant dividend polices andirrelevant dividend policies. Relevant dividend policies depict that mainly investors look overthe market and dividend offered by the company to make a decision about the investment intothe company. Relevant dividend theories are bird in hand theory, expectation theory andresidual dividend theory whereas irrelevant theories are MM theory. Dividend relevanttheories brief that the tax and the transaction cost of the company are also applied andconsidered while making the decision of the investment. Inflation rate do not exist in thistheory (Tucker, 2011). Bird in hand theory mainly considers that high dividend payout ratiomust be adopted by the company as it attracts the investors more due to the thought processof the investors that they would be able to earn the more return from the stock of thecompany.Further, the residual dividend theory depict that the company must manage all theexpenditure, capital expenditure before distributing the divided amount to its shareholders.This depict that the total amount of profit must be distributed to the shareholder but afterpaying all the capital expenditure (DEEPTEE and ROSHAN, 2009). Expectation theorystates that long term interest rate depict about the short term performance of the company.Further, it has been found that all of these theories depict the company to take the use of allthe net profit to attract the investors (Davies and Crawford, 2011).
Corporate Finance4Further, irrelevant dividend policies have been analyzed. It depict that mainlyinvestors do not look over the market and dividend offered by the company to make adecision about the investment into the company whereas they analyze the financialperformance and stability of the company (Breuer, Rieger and Soypak, 2014). Miller andModigliani have invested this approach. They have analyzed through this research that it isnot necessary for the investors of a market to consider the dividend payout of the company(Masum, 2014).They have also approached that the dividend payout of a company could never beenough to analyze about the stability and performance of the company. This theory alsobriefs that the tax and the transaction cost of the company are also not applied and do notconsidered while making the decision about the investment (CORRERIA, 2013). This theorymainly considers that it is not required for an organization to deliver high dividend to theinvestor because this could not depict about the performance of the company (Travlos,Trigeorgis and Vafeas, 2015).The hypothesis of dividend theory depict that various factors are there which makesan impact over the management and organization choice about the dividends. Leverages, debtconstraints, capital rules impairment, cash availability and investment opportunities in frontof the company (Barman, 2008). For instance, if the company has a great investmentopportunity and for that company wants to raise the fund than company could retain someamount of dividend for further use and it would impact over the dividend policies of thecompanies.Further, according to the study ofBrealey, Myers and Marcus, (2007), it has beenfound that the factors are quite important for an investors as well as organization tounderstand. Many times, the dividend is lowered by the company to raise the profits of thecompany through some other ways. Investors must look over these points and make adecision accordingly (Bradford, Chen and Zhu, 2013). It would also help the company tomaintain the stock price.Though, from various studies and the reports of the analyst, it has been analyzed thatthe investors are not well informed and do not have enough knowledge to analyze andevaluate the performance of the company (Bodie, 2013). They only analyze the currentperformance and the position of the company which could only be analyzed through thecurrent market share price of the company (STEEN et al, 2012).
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