Corporate Finance: Analysis of Batu Kawan Berhad Dividend Policy

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This report provides an analysis of the dividend policy of Batu Kawan Berhad, based on its 2018 annual report. The report identifies key determinants influencing the company's dividend decisions, including liquidity conditions, the timing of debt repayment, and growth decisions. It examines how the company balances shareholder payouts with the need for capital for operational needs and future growth. The analysis highlights the company's dividend reinvestment plan, its debt reduction strategy, and its approach to balancing earnings per share with dividend payouts to maintain shareholder satisfaction while investing in business growth. References from academic journals and the company's annual report are included to support the analysis.
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Running head: CORPORATE FINANCE
Corporate Finance
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Table of Contents
Determinants of Batu Kawan Berhad’s Dividend Policy:.........................................................2
Liquidity conditions:..............................................................................................................2
Timing of repayment of debt:................................................................................................2
Growth decisions:...................................................................................................................2
References and bibliography:.....................................................................................................4
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2CORPORATE FINANCE
Determinants of Batu Kawan Berhad’s Dividend Policy:
Dividend policy is the decision regarding the payout of residual profit to the
shareholders and the retention of the profit for further investment in the business. It also
determines the value of shares and the overall value of the company. There are various
factors which have some impact on making such payout decisions or setting dividend
policies. From the given information available in the 2018 annual report of Batu Kawan
Berhad, factors affecting their dividend policies can be outlined as follows (Bkawan.com
2019).
Liquidity conditions:
They are having a plan of dividend reinvestment for their shareholders to reinvest the
cash dividends in the new BKB shares for increasing the liquidity and availability of capital
for smooth operations of their business. Therefore, their dividend policies and schemes are
focused with availability of enough funds for their business operation as well as paying a
good amount of return to the shareholders (Bkawan.com 2019).
Timing of repayment of debt:
They are having $186,695,000 of borrowings which have been reduced by a large
extent over the period 2017 to 2018. It implies they are repaying a huge amount of
borrowings and debts which needs to be considered while setting their dividend policies as it
also requires a huge cash outflow which may lead to a liquidity crisis (Bkawan.com 2019).
Growth decisions:
It can be seen from their annual report that, there was a high growth in the earnings
per share in the year 2016, but still they did maintained the average dividend per share and it
is noticeable that the dividend payout rate was lower in that year. Later on with the decrease
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3CORPORATE FINANCE
in EPS they still maintained the same amount of dividend payout. It implies they are
ploughing back their earnings for the growth of the business as a while satisfying their
shareholders with an adequate and optimum amount of dividends (Al-Najjar and Kilincarslan
2017).
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4CORPORATE FINANCE
References and bibliography:
Al-Najjar, B. and Kilincarslan, E., 2017. Corporate dividend decisions and dividend
smoothing: New evidence from an empirical study of Turkish firms. International Journal of
Managerial Finance, 13(3), pp.304-331.
Bkawan.com.my. (2019). [online] Available at: http://www.bkawan.com.my/pdf/Annual
%20Report%202018.pdf [Accessed 3 Jul. 2019].
C. Arko, A., Abor, J., KD Adjasi, C. and Amidu, M., 2014. What influence dividend
decisions of firms in Sub-Saharan African?. Journal of Accounting in Emerging
Economies, 4(1), pp.57-78.
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