Analysis on Capital Structure, Dividend Policy & Working

SBI has started to dance, to jump and to take big strides for achieving the business goal, which hitherto have been the characteristics of the small and beautiful players in the space. The age-old mammoth institution, SBI in just a short span of 18 months, has blasted its way out of the struggle, where it has been losing its market-share to its main competitors like ICICI Bank, Axis Bank and HDFC Bank. In this 18-month period, the price of the SBI share has risen from a modest Rs 800 to Rs 2,400, thanks to the proposed merger of the seven associate banks with SBI.Banks are entities that provide services to its customers. State Bank of India has only stationary in the form of valuable instruments like stamps, preprinted cheques, demand drafts etc but the value comes up to only Rs 20,43,546 in the year ended 31st March 2007 Thus, in that context State Bank of India or any other bank does not have current assets or liabilities to calculate working capital. Conclusion – Relationship between the Capital Structure and the Dividend Policy Capital structure& Dividend Policy of a company are interrelated.

Both of them have an influence on each other.

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For an instance, the type of capital structure adopted by the company has an important impact on the kind of dividend policy that will be provided by the company for its shareholders. A company going for higher leverage, then it has to pay relatively higher amount of dividend to its shareholders so as to satisfy their appetite. Hence it is vital that the company facilitates its shareholders with a return expected by them. In case of State Bank of India, the bank has always ensured that it has paid huge amounts of returns to its shareholders to ensure that positive sentiments prevail between the shareholders and the company.

By offering liberal dividend policy to its shareholders, it not only provides a good return to its investors but also improves its image in the eyes of new potential investors and thereby enhances its market price per share that finally results in higher market capitalization for the company.