@FeRMioN@kushalagg Does dividend policy has any effect on value of the firm? How would Share repurchase and cash dividend would impact the value of the firm?
Share Repurchase will reduce the number of outstanding shares or the supply of it and so it will increase the earnings per share. This tends to increase the market value of the left shares.
This is what I know all about it. Irrelevant it might be.
Any dividend be it Cash Dividend will negatively impact firm value immediately after issue because a dividend represents a negative cash flow to the company. Long Term Dividends can help when Repayed with Interest.
Share Repurchase will reduce the number of outstanding shares or the supply of it and so it will increase the earnings per share. This tends to increase the market value of the left shares. This is what I know all about it. Irrelevant it might be.
If they are repurchasing the shares then they are giving money also, so how would EPS increase? and according to MM theory value remains same..I am not getting exactly what would happen.:/
Any dividend be it Cash Dividend will negatively impact firm value immediately after issue because a dividend represents a negative cash flow to the company. Long Term Dividends can help when Repayed with Interest.Dividend Policy.
Sometimes it also indicates that the firm would do good in the future and that's why they are giving dividends...
@FeRMioN@kushalagg Does dividend policy has any effect on value of the firm? How would Share repurchase and cash dividend would impact the value of the firm?
Share Repurchase will reduce the number of outstanding shares or the supply of it and so it will increase the earnings per share. This tends to increase the market value of the left shares. This is what I know all about it. Irrelevant it might be.Any dividend be it Cash Dividend will negatively impact firm value immediately after issue because a dividend represents a negative cash flow to the company. Long Term Dividends can help when Repayed with Interest.Dividend Policy.
If they are repurchasing the shares then they are giving money also, so how would EPS increase? and according to MM theory value remains same..I am not getting exactly what would happen.:/Sometimes it also indicates that the firm would do good in the future and that's why they are giving dividends...
Waise schweser videos might not help you greatly .. May be allen resources video can be of some help .. try following only notes . Notes are more than enough to clear with > 70% in all subjects :)
Sorry for that .Waise schweser videos might not help you greatly .. May be allen resources video can be of some help .. try following only notes . Notes are more than enough to clear with > 70% in all subjects
But their are some topics that I am not able to understand on my own...for that I need videos..
When a public company makes profit and has surplus capital it has two ways to use it one to reinvest in profitable projects and the other to redistribute it to public.
Company distributes capital in more than one ways.
Share buybacks/repurchase, dividends and bonus share issues.
A share repurchase is typically an outflow of profit. The value of remaining shares usually increase as EPS increases due to less outstanding shares.
A divided is also an outflow, however after dividend is paid out value of shares usually reduce by the roughly the amount paid as dividend.
okay, cash dividend is the most common form of dividend that is paid out of the earnings of the company (either current profits or reserves and surplus, also known as accumulated earnings)... it obviously increases the goodwill of the company on grounds that it is a profit making company hence, being able to pay dividend.. even loss making companies can pay dividend out of reserves but I guess it has a certain upper limit (which I don't remember.. 😛 ).. but since it is an outflow of profit, it is debited in P/L a/c of the companies final a/cs... it is paid out of PBT (profit before tax)
regarding share repurchase.. it is better known as buy back of shares... it is a form of capital reconstruction of the company... suppose the company wants to reduce the base of it's share holders, what it does it, it withdraws shares from the market, or directly asks the holders to return the shares, IF I REMEMBER CORRECTLY, the upper limit is 25% of share capital+reserves. the shares must be fully paid up.. (as in no calls in arrear). it increases the EPS which is profit after tax/no of share... now obviously if no of shares falls, eps would incraese.. this is the primary objective behind repurchase or buy back, however others objectives are increase the percebtage of promoters holding in the company and increase MARKET PRICE. buy back is only possible out of free reserves of the company (ie, reserves available for redemption of shares)...!!
okay, cash dividend is the most common form of dividend that is paid out of the earnings of the company (either current profits or reserves and surplus, also known as accumulated earnings)... it obviously increases the goodwill of the company on grounds that it is a profit making company hence, being able to pay dividend.. even loss making companies can pay dividend out of reserves but I guess it has a certain upper limit (which I don't remember.. ).. but since it is an outflow of profit, it is debited in P/L a/c of the companies final a/cs... it is paid out of PBT (profit before tax)regarding share repurchase.. it is better known as buy back of shares... it is a form of capital reconstruction of the company... suppose the company wants to reduce the base of it's share holders, what it does it, it withdraws shares from the market, or directly asks the holders to return the shares, IF I REMEMBER CORRECTLY, the upper limit is 25% of share capital+reserves. the shares must be fully paid up.. (as in no calls in arrear). it increases the EPS which is profit after tax/no of share... now obviously if no of shares falls, eps would incraese.. this is the primary objective behind repurchase or buy back, however others objectives are increase the percebtage of promoters holding in the company and increase MARKET PRICE. buy back is only possible out of free reserves of the company (ie, reserves available for redemption of shares)...!!hope this helps...
Suppose Initial Equity is $10000.(1000 shares at $10 each)
Company has decided to buy back 100 shares i.e. $1000 has been given to shareholders
value of remaining 900 shares will be $9000
Share price remain the same i.e $10.. No increase in price??
Suppose Initial Equity is $10000.(1000 shares at $10 each)Company has decided to buy back 100 shares i.e. $1000 has been given to shareholdersvalue of remaining 900 shares will be $9000Share price remain the same i.e $10.. No increase in price??
it will.. see, EPS is basically PAT/no of shares... PAT- profit after tax... now we prepare final a/cs right??? so we will get the profit of the year, then less corporate dividend tax and other taxes and get the profit after that.. now suppose that is X.. initially, my EPS wud be X/1000. now EPS will be X/900.. so it has increased na?? EPS has nothing to do with nominal value of shares... :).. so the $10 is of no good for calculating EPS!! :).. understood?
It's only the EPS that increases as a direct result. The increase in value is as a result of positive outlook on the performance of a company and increased earnig per share
it will.. see, EPS is basically PAT/no of shares... PAT- profit after tax... now we prepare final a/cs right??? so we will get the profit of the year, then less corporate dividend tax and other taxes and get the profit after that.. now suppose that is X.. initially, my EPS wud be X/1000. now EPS will be X/900.. so it has increased na?? EPS has nothing to do with nominal value of shares... .. so the $10 is of no good for calculating EPS!! .. understood?
Yeah..:) that means it would affect only balance sheet but there would be no impact on P/L account?
@mjmegha: In case of share repurchase, the outstanding shares will decrease... what would be the effect on market cap of the company? will there be increase, decrease or no effect?
once the number of shares in the market comes down, the price of the share will increase, but it would not effect the market capitalization as the proportion to decrease in the number of shares and increase in the price of the shares would be almost same.
Hello fellas ! this is Chetan from Surat, it has been a year i cleared CA. m thinking to enroll myself for the june level 1 exam. can anyone suggest me from whr i can get the best notes. i m working so i dont have much time to study, so suggest the easier and relevant source of notes, and also guide me whether i should pay the fees for ebook or printed one coz the difference is 100$. Waiting for your reply.
Irrelevant it might be.
Irrelevant it might be.