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Finance and Growth Strategies - Assignment Example
Author : edytheosinski
Finance & Accounting
Pages 11 (2761 words)
This study aims to evaluate and present practical considerations which are likely to influence a firm’s such as dividend policy; long term financing decision; financial needs of the firm; growth stage of the firm; access to capital markets; legal constrains on dividend payments and others…
The paper tells that dividends are returns which are paid to the shareholders from the firm’s earnings for their investment in the company regardless of whether the earnings are generated in previous period or the current period. Dividends will influence the capital structure of the firm since retained earnings increase the value of the common stock than debt capital. A firm cannot assume the dividend policy to be irrelevant. In determining the amount to be paid as dividends, the firm should analyze the effect of the dividend policy on the operations of the. However, some financial analysts are of the opinion that dividend policy is irrelevant since it does not change the value of the firm. Investors can adjust the investment portfolios when if their preference is a steady source of income hence they can invest in bonds where the interest payments are certain rather than investing in common stocks where the dividend payments fluctuate. Another argument of the opponents of dividend payment is that taxation of dividends is higher hence capital gains are more preferable by investors. They propose that the firm should reinvest the earnings which will ultimately increase the value of the firm hence increasing the share value. The firm should utilize its earnings in undertaking more investment projects, repurchasing the common stock and acquiring more profitable companies thus increasing the market value of the common stock ...