OpenTuition.com Free resources for accountancy students
Free ACCA lectures and course notes | ACCA AAT FIA resources and forums | ACCA Global Community
ACCA F9 lectures ACCA F9 notes
October 6, 2015 at 1:08 am
If the company pays lower dividends- can we say that shareholders will panic and may sell their shares. In that case there will be greater supply than demand and hence this will pull prices down?
John Moffat says
October 6, 2015 at 6:15 am
Shareholders certainly might panic and sell their shares. Whether they will or not depends on how much information they have been given (and whether they believe it )
susan makoba says
May 8, 2015 at 11:18 pm
how can i download this videos?
May 8, 2015 at 11:25 pm
You can not.
The lectures can only be watched online – it is the only way that we can keep this website free of charge.
May 13, 2015 at 8:50 pm
Thank you sir
March 29, 2015 at 8:42 am
Hi John, First of all I would like to thank you for such a good lecture.
I have a little question on this chapter.
If the we reduce the dividends, by this upsetting the shareholders, what action can the share holders take in return to this. For example they may sell the share, but as the dividends are lower, the price will be lower as well. I am trying to deduct the options the shareholders have in case of lower then expected dividends.What other options they may have?
I hope this makes sense.
March 29, 2015 at 9:07 am
Whatever the situation, shareholders only ever have the option to either remain invested or to sell their shares. There are no other actions available to shareholders!
The market value of the shares depends on their expectation of future dividends. If the reduction in dividend is due to the company retaining and investing, then shareholders should be expecting dividends to grow in the future, but what happens in practice depends on what information the shareholders have.
March 29, 2015 at 2:31 pm
Thank you John for your prompt answer!
September 10, 2014 at 9:19 pm
@johnmoffat – Hi John, excellent lecture as always. Thank you
Can you clarify point 3? I thought dividends were an appropriation of profit, and as such the retained earnings belonged to the shareholder whether it got paid out as dividend or not.
So, by paining lower divvies, the retained earnings would just grow and grow as a credit on the balance sheet (sorry SoFP), and in order for the company to get its mitts on the retained earnings they would need to issue bonus shares to the shareholders in return. Is that right, or should I put F7 behind me while doing F9?
September 10, 2014 at 9:48 pm
It is true that the retained earnings (and therefore the total long-term capital) would grow and grow.
But think how the Statement of financial position balances – more long term capital means more net assets!
Of think of it this way – if a company pays out all its earning as dividends then they have no cash left to invest. If they restrict the dividend they have cash left over which can be used to invest in expanding the company.
(Issuing bonus shares makes no difference – they would get no extra cash, and the total capital would remain unchanged as well (more share capital but less retained earnings).)
I think you have probably got it by now, but in case not:
Suppose a company is entirely cash based (for ease), and has cash of 100,000 and share capital of 100,000.
They make a profit of 10,000.
So…..cash is 110,000; sh cap + ret earnings 110,000
If they pay a dividend of 10,000, then back to cash of 100,000 and sh cap of 100,000
If on the other hand they only pay dividend of 2,000 (and retain 8,000), then cash is 108,000 and sh cap + reserves are 108,000.
The more of shareholders money that they retain, the more cash they have available to invest.
September 12, 2014 at 12:43 pm
Thank you for the answer.
so, just to clarify,
In the above example where they paid 2,000 they’d have 108,000 to invest
Retained earnings will still be 8,000 even if they used the cash to invest.
So, assuming they made 12,000 profit the following year retained earnings would be 20,000. Using the cash doesn’t actually reduce the equity in the business does it?
September 12, 2014 at 1:34 pm
That is correct. The equity only reduces if they pay a dividend (or make losses )
You must be logged in to post a comment.
OpenTuition.com is dedicated to providing all accountancy students throughout the world with the resources they need to study for the major … Learn more