Share split is a method of increasing the total outstanding number of shares in the market by decreasing the value of the share in a given proportion.Share split does not alter the total funds. It only decreases the par value of the shares.Share split is a matter of dividing the value of the shares in a proportionate manner and it is not a way to increase the value of the share in the market.Increases the Number of Outstanding SharesShare split affects the total number of outstanding shares in the market. For example, if stock of price Rs 10 has 1 ... Read More

The efficiency of a capital market is measured by the speed and disclosure of information in the market about the shares. The capital markets of advanced as well as some emerging markets are found to be fairly efficient. However, efficiency does not guarantee the fact that the market is perfect.In order to be considered as a perfect market, the following conditions must be satisfied.Absence of Entry BarrierIn order to be perfect, there should be no entry barrier in a capital market. Thereby, in a capital market, anyone can buy or sell shares without needing to fulfill any rules or regulations ... Read More

Informational Content of DividendsDividend payout by competitive companies usually comes with statements of profitability and future growth. A successful firm uses the information to woo its current and potential investors by using promotional content about the profitability of the shares issued by the company. Thus, there is often a statement or content that is used along with dividend payouts. This is known as the informational content of dividends.Informational Content is Useful for InvestorsIt is a fact that any statement made by a profitable firm becomes stronger if it adds some dividend or cash payout to its shareholders with the informational ... Read More

What is a Primary Market?There are two forms of securities markets that are differentiated based on the type of issues of securities in them.The primary market is for the new security issuance, while the secondary market is for the purchase and sale of already existing securities.As the primary markets deal only in new securities, they are also called new issues markets.Primary Market Vs Secondary MarketThe issued securities are bought and sold in the secondary market that is also known as the stock market. The stock market is a second-hand security market that deals in all listed securities.In a primary market, ... Read More

Although there are advantages of paying stable dividends over the years to the company’s shareholders, there are some dangers associated with the policy too. As is obvious, dividend payments play an important part in the smooth running of a business and the stability of dividends makes it more critical for the shareholders.Sudden Break in PayoutsThe stability of dividends creates an image of a company in the minds of the shareholders and this image keeps growing over time.When a company suddenly stops paying stable and regular dividends, it creates a grave hollow situation in shareholders’ desire. This can impact their livelihood ... Read More

Mutual funds pool investments of like-minded investors and invest the cumulative sum in large and diversified investment projects. This helps small investors access big projects which they might not access individually.Advantages of Mutual FundsThere are some distinct benefits of mutual funds such as the following −SimplicityMutual funds are an easy means for small investors who do not have quite a good knowledge of the stock market or the shares being traded in the markets.Small investors who cannot access large projects can simply invest money in small amounts which are pooled by the mutual funds and invested in the market.The investors ... Read More

Walter’s model is a dividend theory that considers the internal rate of return (IRR) and cost of capital to derive the valuation of a firm. The internal rate of return and cost of capital remains constant for the entire cycle of calculation. However, according to Walter’s model, the Earnings per share (EPS) and dividend per share may change.Assumptions of Walter's Dividend ModelWalter’s model of dividend theory is based on some assumptions, which are discussed below.Internal FinancingThe entire cost of a project is paid via internal financing and no new debt or equity is used in financing a firm’s project.To be ... Read More

Like Walter’s model and Gordon’s model, the Miller and Modigliani model also rests upon some assumptions. The MM model is much celebrated one due to the flexibility and exclusiveness of the theories included, which are discussed below.Perfect Capital MarketsThe MM model considers the capital markets to be perfect. This means that the markets have all rational investors. By rational, it means that all investors in the market tend to be risk averse and want to earn the maximum profits from investing in the markets.There is always a fair competition in the markets which means that all investors have the relevant ... Read More

Gordon’s dividend model is a progression of Walter’s model as it adds some more restrictions to the theory. Gordon’s model however rests on the same assumptions Walter’s theory proposes in the very first place.Assumptions of Gordon's TheoryThe assumptions of Gordon’s theory are discussed below.All-Equity FirmGordon considers the firms to be of 100% equity. Moreover, it should not have any debt financing for calculating the dividends in practice.No External FinancingTo be considered under Gordon’s model, a company must have good financial health. In other words, the company must be able to finance all its projects by its own internal funds. No ... Read More

There are certain advantages of paying stable dividends over time. Some of these advantages are discussed below.Resolution of the Uncertainty of Investors’ IncomeInvestors usually get to know about the performance of a company via the dividends they earn.When a company pays stable dividends over the years, the investors understand that the company is doing good and there is no risk of staying invested in the firm.When a company increases the number of dividends, it usually does so when it can maintain the increased level in the future. So, when increased dividends are paid, it conveys a positive message to the ... Read More