Corporate Financial Management - Dividend Policy Sample

Question: Discuss about the Corporate Financial Management for Dividend Policy? Answer: Dividend Policy of a firm has no relevance to the value of the firm. Miller Modigliani 1963 From the above statement from Miller Modigliani (1963), it reveals that value of a firm solely determined from investment decisions as well as policies (Aamer 2013). It is observed by the scholars that specified dividend policy ensures sale of new equity shares. This theory underlies certain assumptions. It is noticed that empirical evidence concerns on dividend policy of particular business organization (Albrecht, Stice and Stice 2011). Most of the scholars and studies suggested owing tax for investors. It needs essential pre-tax returns for higher payout ratio and comparing with low dividend payout stocks. Assumptions First assumptions includes no issuance cost Organization believes that paying issuance costs as well as new securities obtains equity capital at similar costs (Baltazar 2012). Dividend policies enhance special type of information for anticipation purpose for higher earnings (Brigham and Houston 2013). Established share prices hugely affect the dividend policy in the particular theory. Some practitioners presume that dividends signify reliable content information for decision-making process (Arnold et al. 2012).Dividend policy is considered important because equity capital as well as retained equity is expensive in nature. Optimal dividend policy helps in formulating ways for relative cost of retained earnings and equity on external basis. From the viewpoint of Modigliani and Miller, it is argued that existence of investor favours dividend policies (Balla 2012). It mainly identifies altered dividend policy that could lose stakeholders in other entities as well. Most of the investors do not care whether they receive capital gain income or dividend income. Assumptions reveal that there is no issuance cost. Organization should relate from payment of past earnings and dividend retention in the most appropriate way. Dividend payment ensures regular pay of stock in the particular theory. It should find ways in influencing existence of investment policy in an overall manner (Barrow 2011). From the perspective of Miller and Modigliani, organization focuses on investment policy in comparison with dividend policy for the same. On critical analysis, it is noticed that dividend policy ensures existence of investors in shared values(Brigham andDaves 2013). It mainly notes empirical evidence in suggesting changes in regard with dividend policies as well as stock price influence. Firms mostly prefer dividend policies at appropriate way for ensuring stable dividends in the theory. Addition to that, increased On analysis, it reveals that dividends help in conveying authentic information from earning prospects of the firm. Miller and Modigliani theory explains the information on dividend policies as well as influences the share prices in relation to special dividend payments. From Gordon Theory on Dividend Policy, it is revealed that dividend concept states determination of value of business firm. Dividend concept involves current dividends for viewing at the direct implications of overall concepts in an overall manner. It suggests calculation of market firms in solving the issues on dividends faced by Imperial Tobacco. It reveals market value share determining the future dividend policies in an overall manner. It is noticed that market value determinants shares for main perpetual stream in payment of future dividends in the most appropriate way. Walter Model indicates understanding clear definition on cost of capital as well as internal rate of return for the same. It reveals determination of dividend policies for minimization of cost and maximization of profit for smooth functioning of business firm. It reveals concepts that affect the dividend policies in equity and debt policies in an overall manner. It involves various natures of models leading towards maximization of shareholders equity in the most appropriate way. Walter Model gives detailed investigation on mixing of valuation shares on dividend policies in the final investment decisions. It aims at providing various investment opportunities in financing retained earnings in case of external financing of debt as well as equity. It enables maximizing of optimum investment and minimization of cost for the same. On analysis, it is important to compare three theories like MM, Gordon and Walter Model. These theories are important especially in financial management for smooth functioning of business enterprise. It helps in bringing strong relationship on advancement of dividend policies for the same. It is essential for understanding the concept of Walter Model that specifies maximization of owners wealth in various investment policies. As far as Gordon model is concerned, it relates establishment of dividend capitalization for checking the market values of each share. On the contrary, MM theory strictly follows internal and external financing for bringing changes in the business firm. In the real world, dividend policy is relevant to a firm value It is important to indicate a real-life scenario from the company named Imperial Tobacco. This particular business enterprise plans for current dividend policies with the help of increased payout ratios. It enables checking on dividend per share and earnings per share of business firm. The above statement indicates essence of bringing changes for the dividend payments. Most of the investors believe in evaluation of management attributes on matters relating to cash flow and future earnings in particular organization. From the management perspective, it reveals perceived information on profitability aspects of business organization (Davies and Crawford 2012). It includes existing and potential investors for indulging in final decision-making process. Changed dividend policies ensure unambiguous indicators in attainment of future prospects in business enterprise for future analysis purpose. Information on methods on dividend policies includes management presentations on security and annual reports for changed dividend policies(Dyckman, Magee and Pfeiffer 2011). It helps in providing essential signals for the investors on capital structure attributes in an overall manner. From the perspective of investors, it involves dividend payments in the present world scenario. It is noticed that dividend stability builds positive image for particular business organization. Addition to that, company management should have clear understanding on the payment of dividends uncertainty for creation of poor dividend policies. It helps in alienating for potential and existing investors on matters relating to unstable dividend payments (Brigham and Houston 2013). This will greatly influence the investors perceptions for the level of performance presented in financial markets. Scholars claims for sharing values for earnings divisions on matters relating to retention of dividend policies. It mainly imposes related proposition by MM for conducting restrictive assumptions for better understanding of related concepts. Dividend policies helps majority of shareholders in respect to preference dividend policies (Deegan and Unerman 2011). Shareholders face risk in preference divi dends and related promise on future capital gains. It is noticed that consistent dividends helps in providing certain functions for the investors. On critical analysis on MM theory, it reveals reduced dividend policies for viewing at the uncertainty level among the investors. It focuses on making discounted future earnings in relation with business enterprise. It is noticed that shareholders who fails in paying the dividends give rise to huge uncertainty among the potential investors (Dyckman, Magee and Pfeiffer 2011). This particular approach will lead to low shared prices and increased discounted rates. Transaction cost is imposed on the investors and receives capital gains from the cash dividends. From the theory on Miller and Modigliani, it provides enough relevance on the dividend policies. It introduces ways and models for incorporating for dominant determination of facts in a particular business organization (Eun and Resnick 2012). MM theory signifies undertaking sample size of 28 corporate entities in US from the year 1950. It conducts qualitative research and inculcates interviews from CEO and CFO of firms in and around US (Greene and Dince 2012). It is important to consider the fact that established dividend policy will serve as an active factors in present life scenario (Horngren, Harrison and Oliver 2012). From the perspective of managers, they have an idea on stable dividends and reduced negative perceptions from the investors point of view. Dividend payments and retained earnings ensure adding up the by-product from the main dividend policies, which requires majority of shareholders. It involves major dividend policies as an active determinant for further research ( Kapil 2011). It is advisable that managers should have faith in investors as well as dividend pattern. It revolves around the market put premiums for stable dividend policies for the same. On critical analysis, it is judged that special payouts aim at reducing cash as well as cash equivalents (Libby, Libby and Short 2011). It analyses the payout ratio and compares it with balance sheet figures. As far as special dividends are concerned, it occurs from payouts and related cash attributes. It mainly involves overvalued stock for increased EPS as well as making the required changes in the business organization (Madura 2012). Miller and Modigliani gave the concept on dividend policy and investment policies that mainly affects the working of a particular business organization. This particular theory fails to hold true sense of attributes in dividend policies (Qu and Yang 2012). However, it gives rise to negative ramifications on matters relating to cash flow of an entity. Special dividends influence the firm value either positively or negatively. It varies with consisting payouts from the early investors. Derivation of operating cash flow involves related recouping sections in final investment process for effective decision-making in an overall manner (Rothenberger and Siems 2012). It should focus on analysing the ability of the firm for operation of cash investment for future research analysis. It is noted that special dividends ensures cash achievement from related debt structure affecting entire business organization (Schiff and Lewin 2012). Cash flow operations of the firm should possess enough capacit y for covering interest payments (Schroeder, Clark and Cathey 2011). It should stop worrying from the financial distress of the investors in the most appropriate form Business and Financial Risks faced by Imperial Tobacco Financial Market Risk It is important to understand the fact that Imperial Tobacco gets affected by significant level of committed debt, bank loan markets, and capital markets debt obligations. It requires efficient financing for several debt policies and checking the funds availability in an overall manner. It checks reliability of funds from various bank counterparties for future business activities. Falling credit ratings is one of the financial market risk that needs proper consideration from Imperial Tobacco. Cost of committed funds requires rising cost in an overall manner. It implies future trade funding affecting rising debts issues in case of breath funders in the near future. It is noticed that debt rise with 44% in fixed levels interest in case of high funding costs. Addition to that, Imperial Tobacco faces cash outflows issues in an overall manner. From the annual report, it is evident to gather facts on risk faced by Imperial Tobacco. This risk mainly includes business and financial risk that needs consideration on urgent basis (Spiceland, Thomas and Herrmann 2011). Most of the risk does not provide limitations for social risks, environmental risks and financial risks for the same. It involves illegal circulation of tobacco products and affects the tobacco industry on an adverse manner (Wink and Corradino 2011). It should ensure conducting anti-social campaigns with the help of health authorities that positively affects the policy makers in the near future. Potential risk brings discouragement from the client perspective and influences the behaviour patterns concerning Imperial Tobacco (Balla 2012). It should involve in anti-tobacco advertisements because it will help in bringing positive attitude from the individuals. Advertisements mainly focus on bringing awareness among public that smoking is unpleasant and considered unhe althy constraints (Albrecht, Stice and Stice 2011). It should be emphasis on matters that smoking in public places should be prohibited strictly by the public. It is important to consider the fact that company management focus on acknowledging for understanding the present level of uncertainty. It experiences various form of financial markets for bringing out the positive attributes from the particular business organization. Counterfeiting issues are noticed especially in the Nigeria markets (Aamer 2013). It is noticed by the people that replicated companys offers products that mainly affects the customer extension process. It helps in differentiating between genuine and illegal products in business activities. It is noted that Rogue importers uses Rizler papers for the purpose of increase target market in Senegal. It should emphasis mainly on counterfeit products that includes booklets. It helps in keeping low priced products of Imperial Tobacco (Wink and Corradino 2011). Problems arise because of showing higher availability of products in major cities and towns that brings saturation point in along fake products of Imperial Tobacco. The a bove analysed problem hampers the profitability ratio and reduced performance level concerning business organization. Imperial Tobacco faces issues with illicit trades because it hugely affects the tobacco sectors. It is noticed that sale of illicit whites enhances counterfeit products in providing related competition especially for the market condition process (Spiceland, Thomas and Herrmann 2011). It emphasizes mainly on the domestic products for duly payment free products after viewing at the present business condition. Market shares include stock prices for analysing purpose for Imperial Tobacco. These approaches will bring enlightenment on mitigating problems especially for company officials. It involves government authorities that address the problems for future analysis purpose. It is important to consider the fact that several issues intensifies on related illegal Chine products (Scott 2011). This put emphasis on the coupling operational activities at Imperial Tobacco. It involves dedicating enforcement actions for the related counterfeit products attributes in an overall manner. Partnership approach serves as a mitigating tool for briefing the issues in faster ways (Schroeder, Clark and Cathey, 2011). It mainly enhances on excise duty and raise public funding process as well as private control agendas in the most appropriate way. Recent Financial Performance of Imperial Tobacco Profitability Ratio Imperial Tobacco Profitability Ratio Gross Margin Ratio 2014 2015 Gross Margin $18,036,883 $20,587,576 Net Sales $21,864,478 $25,276,809 82.49400237 81.44847714 Profit Margin 2014 2015 Net Income $1,456,883 $1,877,741 Net Sales $21,864,478 $25,276,809 6.663241629 7.428710641 Return on Assets 2014 2015 Net Income $1,456,883 $1,877,741 Average Total Assets $16,902,088 $20,421,712 0.086195445 0.091948266 It is noticed from the above table, Imperial Tobacco needs improvement in net profit ratio because it is too less for future business activities. Gross margin ratio arrives 82% in the year 2014 and 81% in the year 2015.This particular ratio implies comparing gross margin with net sales. High gross margin ratio helps in measuring selling of inventory for smooth functioning of business enterprise. Shareholders Equity of Imperial Tobacco Return on Equity 2014 2015 Net Income $1,456,883 $1,877,741 Shareholder's Equity $2,814,518 $4,265,359 0.517631438 0.440230471 Return on equity ratio is one of the indicators that help in equity financing for fund operations as well as future growth. The above table signifies that shareholder equity increases with proper allocation of equity shares in an overall manner. From the current annual report on Imperial Tobacco, it is noted special disclosures by the Finance Director for achievement of future outcomes of business activities. It mainly possesses enough capacity in earning revenues for future analysis purpose (Schiff and Lewin 2012). Imperial Tobacco indicates constant positive financial performance that manages with the cash effectively and cost management in an overall manner. It is revealed from the year 2013 that net revenue reduced with one percent from excessive sale of tobacco products. It emphasis mainly on the net volume reduction and seven percent offset prices for bringing net worth of Imperial Tobacco (Rothenberger and Siems 2012). From the present operating environment, logistics distribution fees enable reduction with five percent especially from economic headwinds especially from European region for future analysis purpose. Operating profits generates increase with one percent for bringing uniformity in the business activities for the same (Qu and Yang 2012). Favourable financial performance reflects on matters relating with generation of net revenue especially in the emerging markets. Realization on profit gains establishes strong market in Russia and USA. On financial analysis, it is noticed that market performance hugely affects constant decline in net revenue and volume especially in Spain. Illicit trade activities influences increased custom duty for future research purpose (Madura 2012). It effectively brings out the changed duty noticed from the deregulation markets in Morocco. Imperial Tobacco believes in preparation of financial statements for various undergoing concern in an overall manner. It puts emphasis on the historical cost convention policies for conduction of act recognised in the year 2006 (Libby, Libby and Short 2011). In accordance with 408 of companies act, it helps in establishing separate income statement from related business organization in the near future. Investments Imperial Tobacco invests in certain attributes from nearest subsidiaries. It mainly indicates ways for provisions for future analysis purpose(Leo et al. 2012) Financial Instruments Imperial Tobacco conducts usage of non-derivative financial instruments that includes debtors. It helps in enhancing fair values as well as amortization. It serves the purpose for allocation of costs in related interest method rates in the most appropriate way (Kapil 2011). It emphasizes on impairment on related accounts receivable figures generated from the annual reports of Imperial Tobacco. Profit for the year Imperial Tobacco involves in calculating profits for the current financial year. It aims at profit maximization with cost minimization in business activities (Horngren, Harrison and Oliver 2012). Financial statement analysis process the audit fee charge at 0.4 million from the past financial years. Treasury shares Imperial Tobacco conducts share purchasing from the buyback program as well as detainment of shareholders (Horngren 2013). It mainly deducts funds for analysing the basic attributes of shares traded in the open markets. Purchase groups revolve around 867000 shares that cost 182 million on yearly basis. Imperial Tobacco believes in creation of shared values (Grieve 2013). It is possible by conducting meetings and strict criteria for main acquisition in an overall manner. Buyback program helps in finding suitable variations for established business activities. It is important to consider the fact that company puts emphasis on special dividend policies especially for supply funds in way of single instalments (Greene and Dince 2012). Management should evaluate variable options considering disclosure of business activities and generation of supply funds on timely basis. Debt capacity of the business and sources of financing available to Imperial Tobacco 2012 2013 2014 2015 Long-term Debt $4,028,538 $5,011,640 $5,488,591 $8,299,328 Total Equity $1,900,207 $2,972,081 $1,664,741 $2,023,128 Debt/ Debt+ Equity $0.68 $0.63 $0.77 $0.80 Imperial Tobacco should make ways in acquisition of equity shares as well as decreased debt obligations for future business activities. In the financial years, it is noticed increased balance amount of debt and equity required for smooth functioning of business enterprise. Imperial Tobacco shows consistent increase in the debt capacity from the year 2008. This particular company reveals attribution in form of acquisition of Atladis in the year 2007. It is noticed that there was mandatory undertaking of large borrowings figures from the annual reports of Imperial Tobacco. It mainly involves debt accumulation figures for bringing subsequent variation from the share values of Imperial Tobacco (Gapenski and Pink 2012). Addition to that, it is revealed from annual report figures that Imperial Tobacco faces rapid decrease from the debt figures on faster pace. Main sources of financing for Imperial Tobacco put emphasis on the sale of shares. This particular concept of financing brings creativity for shared values with shareholders for future analysis purpose. Another source of financing includes sale derivation making the necessary diverse brands in the most appropriate form (Dyckman, Magee and Pfeiffer 2011). It is important to understand the fact that market management reveals good profit generation. Most of the companies believe in positive returns for attainment of future growth on various operational ways. Product markets include supply of fine tobacco, smokeless tobacco, paper and cigar. Generation of diverse brands involves recording of positive returns at 12% on total tobacco revenue (Deegan and Unerman 2011). Addition to that, Imperial Tobacco commits various policies in way of adequate funding as well as providing bank facilities for the same. It helps in meeting various borrowing needs especially in peak season. Acquisition of a ssets mainly revolves around brand recognition for entering in the committed facilities for research purpose(Davies and Crawford 2012). Credit facilities and term loans mainly presumes the financial performance of Imperial Tobacco. Recommendation on an optimal capital mix of Imperial Tobacco It is advisable for Imperial Tobacco for conducting best optimal mix condition for smooth functioning of business enterprise. Optimal mix is an ideal condition whereby companys shares maximized values in their business activities (Brooks 2013). Imperial Tobacco should consider ways in offering balanced debt for bringing out ranges of equities as well as reduced debt for the same. It mainly involves in minimization on cost of capital and bringing true essence of business practices. Imperial Tobacco should stress on attainment of capital structure for future analysis purpose. It helps in ensuring great deal of attention for bringing changed pattern for final course of action (Brigham and Houston 2013). This particular company should believe in maximizing shared values from the point of view of the shareholders for viewing at the operational functions. It should emphasis on value processing equity and reduction in debt for attainment of goals and objectives of Imperial Tobacco. Optimal capital mix will help in reduced equity pattern among the potential investors for return availability in the near future (Brigham and Daves 2013). Creation of favourable image helps in bringing innovative perceptions of the investors for Imperial Tobacco. It should analyse for open market policies and adjust with earnings per share in an overall manner. It is advisable for Imperial Tobacco for engaging entirely on cash generation and harbours responsibilities as far as possible (Berry 2011). It should ensure reduced debt amount for the purpose of consulting ways for smooth functioning of the business enterprise. This particular company should find effective mix of equity for maintaining structured decision-making process in the most appropriate way (Bekaert and Hodrick 2012). It should relate with constant dividend policies for viewing at the dividend payout ratios for the same. At the end, debt and equity should be balanced for checking dividend policies in an overall manner. Calculation reveals Imperial Tobacco is capable of handling future dividend fluctuations faced by the company. Reference List Aamer, M. (2013).Microsoft Dynamics AX 2012 Financial Management. Packt Publishing. Albrecht, W., Stice, E. and Stice, J. (2011).Financial accounting. Mason, OH: Thomson/South-Western. Arnold, G. (2012).Corporate financial management. 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