Notes of IBSA(Maria Ali-22563)

 Financing
Internal Financing > Retail Earning> No interest Paid
External Financing > Debt> Interest Paid
 NI is divided into
>Divedient
>RE
 Return of a stock is nothing but dividend Yield and Capital Gain.
 Return = D1/Po( DY) + P1-Po/Po(CG)(Change in Price)
 DV goes up but CG is down The Investor is risk averse and B<1
 DV goes down But CG is up The Investor is risk taker and B>1
 A dilemma with a company board of directors how much to pass RE and
how much Divedient.A company divident policy:
How much of the firm’s earnings should be distributed to shareholders
as dividends, and
How much should be retained for capital investment?
 3 view points from investors side
1) Dividends are Irrelevant. If we assume perfect markets (no taxes, no
transaction costs, etc.) dividends do not matter. If we pay a dividend,
shareholders’ dividend yield rises, but capital gains decrease.
2) High Divedient are best.Some investors may prefer a certain dividend
now over a risky expected capital gain in the future.
3) Low Divident are best as taxes are not paid fast so they can deferred
as CG tax is not until sold.
 Rare case is when CG and DY are both increasing but reuqired return is
when one of Cg or Dy is increased and one is is decreased from CG or Dy.
 3 types of Divdent
Cash Dividend is always been adjusted with par value of Rs
10.Announced as Cash dividend 30%,40%,70% of par value
Speci Divediendq
Stock Dividend in form of stocks announced.Called bonus shares also.
 Residual Dividend theory is we use it for internal fincanccing and the
amount left is for Divdend.
 Expected Divdend theory is when Investors form expectations
concerning the amount of a firm’s upcoming dividend.Expectations are
based on past dividends, expected earnings, investment and financing
decisions, the economy, etc.The stock price will likely react if the actual
dividend is different from the expected dividend.
 Constant Dividend Payout Ratio: if directors declare a constant payout
ratio of, for example, 30%, then for every dollar of earnings available to
stockholders, 30 cents would be paid out as dividends. The ratio remains
constant over time, but the dollar value of dividends changes as earnings
change.. Payout structure constant but per share divident is more due
to the income increasing. 80 to 85% payout ratio is given
 Stable Dollar Dividend Policy: the firm tries to pay a fixed dollar dividend
each quarter.Firms and stockholders prefer stable dividends. Decreasing
the dividend sends a negative signal!
 Stock Repurchase is referred as Treasury stock or Stock
buyback.Repurchases drive up the price.Company do that to give a signal
to the market.When market shares increase and decrease number of
shares outstanding so gain will go to company.its shown in negative in
equity paet of bs.


2
3