Financial Decisions is a comprehensive financial planning and wealth management firm that helps high-net-worth individuals and businesses achieve their financial objectives. The third important decision that every financial manager has to take relates to the distribution of dividend. Dividend is that portion of profit which is distributed to shareholders. The decision involved here is how much of the profit earned by company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business for meeting the investment requirements. The Dividend Decision is one of the crucial decisions made by the finance manager relating to the payouts to the shareholders. The payout is the proportion of Earning Per Share given to the shareholders in the form of dividends.
While dividend constitutes current income reinvestment as retained earnings increases the firm’s future earning capacity. The extent of retained earnings also influences the financing decision of the firm. Since the firm does not require finds to the extent of re-invested retained earnings, the decision regarding dividend should be taken keeping in view the overall objective of maximizing shareholder’s wealth.