Capital Structure and Dividend Policy Analysis
Company Profile Apex tanneries has been setting standard in Bangladesh leather export industry since 1976.
equiped with the state of the art Italian modern machinery and maintaining high quality strictness. Through the years its production has been progressively entailing a constant expansion of building and machinery . Annual production exceeds 23 million square meters and company sales turnover amount to over US $30 million , thus creating a exemplary model for corporate development in the tannery sector.
This growth is a result of precise strategic decision and constant improvement in the service of its customers, which ha s lad to its presence in the global arena playing an attractive role in the major lather markets of the world. 2.
Mission of the organization Excellence in leather Manufacture is mainstay of Apex tanneries Ltd. Bringing the excellence in leather manufacturing is the mission of the Apex Tanneries Ltd. Apex has been contributing for the last two decades in building a robust national economy through its continuous effort both in share market and in tannery industry. . 3Main Products of Apex Tannery Apex tannery specialized in cow full chrome, cow semi chrome, cow vegetable, goat full chrome, goat semi chrome and various types of leather for shoe and leather goods.
In finishing Apex tannery specialized in natural looking aniline and semi aniline finish with good look and good touch following the latest market trends.
Concept of corporation Dividend Policy: In simple words Dividend means a portion of shareholders earnings, which is distributed among the shareholders of the corporation. In other words, ividend policy determines the division of earning between payment to shareholders and retained earnings. Retained earnings are one of the most important sources of internal funds for meeting the financial needs of the company for its growth and development. Dividend can only be paid out of distributable profits, i. e.
, the profits which are classified as distributable by company law. However, the dividend distributions to equity shareholders involve the outflow of cash. Both growth of the company and dividend distribution to shareholders are desirable.
But these two goals are in conflict. A higher dividend rate means less retained earnings, which may consequently result in slower growth and lower market rate per share.
Some firm prefer a fixed percentage of dividends to their stockholders and other choose dividend on the basis of their profit performance. There are some other factors like legal constraints, internal constrains, contractual constrains, and growth prospect, market or owners consideration can have some impact on firm dividend decisions. Indeed, Different Corporation follows different dividend policy.
Some prefer dividend irrelevance theory and others chose dividend relevance theory or bird on hand theory. This decisions are completely depends on their share holders needs as well as board of directors preferences.
Main concept of dividend irrelevance theory is to show no relationship between dividend and stock price of the share where stock price is determine by the basic earning power and the risk of the investment. On the contrary, dividend relevance indicates an opposite scenario where we determine an interrelationship between dividend and stock price. Basically all corporations do not offer same type of dividend.
Following are some of the important notation regarding some common form of dividend: – ? Cash Dividend is the amount of cash which are distributed from net income of a corporation to their shareholders. ? Stock dividend indicates issuing bonus share by the corporation for their stockholders for raising more capital or enrich their reserve capital. ? Constant dividend per share is a policy of the firms where they pay a constant or regular dividend amount as a percentage form, in terms of dividend per share.
For example, a firm’s directors may decide to pay, a regular annual dividend of 10 taka per share. Low regular dividend periodical dividend is a policy where the firm paying a small regular dividend, which in high earnings years is supplemented by an enhanced dividend, usually includes with the final dividend payment. Dividend relevance Verses irrelevance Theory: All of the firm’s decision regarding dividend policy depends on their stockholders preferences who appoint the Board of Directors and deciding that decision which is effective for both corporation as well as stockholder. Basically two types of investors are available in our industry; some prefer current return or other chose to maximize their wealth.
Following figure differentiated this concept in detail: – Figure: Comparison between dividends relevance versus dividend irrelevance theory 1. 4.
Concept of corporation Capital structure: Capital structure is the combination of debt and equity used to finance a firm, though a firm may only use debt or only equity to finance. A firm cost of capital is least when it can use optimal capital structure. Optimal capital structure is the one that strikes a balance between risk and return to achieve ultimate goal of maximizing the price of the stock. Business risk and financial risk are related with a firm’s capital structure.
Business risk is defined as the uncertainty inherent in projections of future returns, either on assets or on equity (ROE), if the firm uses no debt. Financial risk is the portion of stockholders’ risk, over and above basic business risk, resulting from the manner in which the firm is financed.
Financial risk results from using financial leverage, which exists when a firm uses fixed income securities, such as debt and preferred stock, to raise capital.