CASE STUDY CSR LTD

Case Study: CSR Ltd

Case Study: CSR Ltd

Questions 1: CSR Dividend Policy

Dividends payment result in reducing the reducing the plowback ratio of funds that the company can reinvest in the business for future growth. This requires placing greater burden on other sources of financing to continue the business operations. Dividend payment works best in situations when a company has sufficient volume of funds for business operations. This shows that policy of paying dividends is directly connected with the capital structure management decisions. Majority of newly formed companies do not pay out dividend on its share to shareholder and plowback all funds for future growth and expansion purposes. This enables them in stimulating their business growth, while improvising on the capital gains.

Dividend payment policy structure differs greatly from company to company and industry performance. This involves making considerations for the financial position of the company and ensuring viable liquidity position to keep continue future operations. Many companies hold cash dividends when industry is performing below average or company is having short-term liquidity problems. However, many companies in order to manage the shareholder trust in company keeps continuing paying dividends even in cases of short-term crisis. For example, British American Tobacco focused on maintaining its dividend payout ratio in past three years even after facing the short-term liquidity crisis (Carmichael, 2011).

In majority of situations, companies define the dividend policy criteria. The dividend policy of a company represents a plan of action to be followed whenever a decision is made ??with respect to dividend payment and the wealth maximization objective of the company by retaining the interim profits. The dividend policy must be designed not only to maximize the price of shares in the subsequent year, but to maximize the corporate wealth in the long run that result in increasing the overall worth of the firm. An adequate funding can be considered a secondary target of the dividend policy. Without adequate funding for acceptable projects, the process of wealth maximization cannot be done. The company must forecast or predict its future cash requirements and must take the availability of funds and external considerations of market into account for determining the dividend policy.

The dividend policy need is defined on the basis of considering two fundamental objectives in mind. These include wealth maximize of shareholders of the company and increasing the available sources of funds in the long-run by investing the funds in company operations. Both of these objectives cannot be met in mutually exclusive conditions. However, company also has to address the legal and contractual restrictions, with respect to internal obligations towards owner. In order to maintain the trust of shareholders in the company, company must focus on following consistent dividend policy structure that result in managing the shareholder interest in the company. Company may opt for two forms of dividend policy. First form of dividend policy is aggressive in nature; however, second form of dividend policy is conservative in nature.

In aggressive approach of dividend policy, company focus on distribution of dividends to ...