Page 1 - Lesson Note 3

SAI INTERNATIONAL SCHOOL

CLASSS XII

SUBJECT: BUSINESS STUDIES

CHAPTER -9, FINANCIAL MANAGEMENT

Topics: Dividend decisions, factors, financial planning, objectives,

importance.

(Lesson-32)

Dividend Decision

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.

While the dividend constitutes the current income re-investment 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 funds 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.

Factors Affecting Dividend Decision