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Arabian LLC is a public company that manufactures and sells consumer goods. The company has been profitable for the past several years and has
Arabian LLC is a public company that manufactures and sells consumer goods. The company has been profitable for the past several years and has a strong balance sheet with significant cash reserves. They are planning to buy the competitor's business within 2 years. Till the year ended 31 December 2021, Company used to declare the same percentage of dividend even if the profit is high or low and any remaining profit is kept under reserve for future purposes. At the Board meeting, the directors after reviewing the company's financial statements and the available cash flow, are now considering the dividend declaration for their shareholders for the year 2022. In the discussion, a director suggested not to give any dividends for 2022 and to accumulate the fund for future purposes. Another director suggested declaring at least the same amount of dividend like previous years, otherwise, the shareholders will be unhappy, and the company may lose the confidence of the shareholders. Another director suggested issuing bonus shares utilizing the reserve or a good amount of dividend to the shareholders. You are required to define the dividend policy and analyse the factors influencing a company's dividend policy. While answering the above, analyse critically the various options given by the directors in the given scenario.
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Definition of Dividend Policy Dividend Policy refers to the approach a company takes in determining the distribution of profits to its shareholders in the form of dividends It involves decisions on ho...Get Instant Access to Expert-Tailored Solutions
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