Companies use their net earnings either to keep them as retained earnings or to distribute them as dividends. The need for retained earnings or dividend payout is solely a matter of management's decision. However, in the case of a conflict to choose between the two, it is up to the dividend policy of the firm that is created before earning a net income.The objectives of a company's dividend policy can be divided into two major parts.The Company's Need for Funding its Future ProjectsFirms may use the net earnings as retained earnings to fund their future projects.As retained earnings have some ... Read More

Myron Gordon proposed a dividend model that included some more assumptions than the Walter's model. Gordon's model increased the assumptions of Walter's model and it reflected the evaluation of projects of those firms that have palpable tax and cost of capital greater than growth rate.Gordon's model has all the assumptions of Walter's model. In addition, it has three more assumptions which include −No Taxes − No corporate taxes should exist with the firm.Constant Retention Ratio − The Retention ratio is constant and does not change with changing income or expenses.The cost of capital is greater than the growth rate. In ... Read More

John Lintner was a professor at the Harvard Business School who had researched on the factors that guide a company's dividend payout policy. Lintner came up with a formula for determining an optimal corporate dividend policy. His dividend policy model is founded on the principle that all companies tend to grow the dividend payouts to a target level and this process starts slowly in the beginning but takes a certain speed with passing time. This speed is known as the speed of adjustment.However, it has also been observed that there is a danger in increasing the speed of adjustment abruptly. ... Read More

What are Ordinary Shares?Ordinary shares are tools that provide the investors the ownership rights to a company. There are two types of shares available for purchase −Ordinary SharesPreference SharesPreference shares are treated before the ordinary shares in case a company goes into liquidation.Attributes of Ordinary SharesInvestors can buy or sell ordinary shares anytime they wish in the share market. The share market is therefore the trading hub of ordinary shares and the shares of all listed companies are traded in the markets.Ordinary shares are the source of permanent capital for a company.Ordinary shares do not have a maturity date.The price ... Read More

Open-end and closed-end mutual funds are sub-divided into certain categories depending on their objectives. The objective of mutual funds is an important parameter because most mutual fund investors have specific aims when they invest in MFs. Therefore, the types of mutual funds vary with the primary objectives of the funds.Income FundsThe primary objective of income funds is to generate high current income. Therefore, the mutual fund managers of income funds invest in high-yielding shares in the market.It must be noted that income funds invest in high-risk shares because the investors of income funds seek to take a little risk to earn ... Read More

It is observed that in most of the hypotheses of dividends and shares, analysts consider the capital markets to be efficient. However, from the point of view of an investor, there are no markets in the world that can be regarded as perfectly efficient. In fact, it is hard to define a perfectly efficient capital market. However, the efficiency of capital markets can be determined by incorporating some aspects of the capital market attributes.In general, capital markets are envisioned to have enough liquidity and fair price mechanism.Liquidity measures mean that the market can offer cash in lieu of securities instantaneously ... Read More

Authorized, Issued, Subscribed, and Paid-up capital are issues related to the reporting of shares. It is important to divide the total capital earned from the share market into Authorized, Issued, Subscribed, and Paid-up capital to measure the various attributes of a share. These factors may affect the book value of a share and hence are important factors to recognize.Authorized CapitalAuthorized share capital represents the maximum amount of capital a company can raise from the market. It is the maximum amount a company is permitted or capable of raising from the shareholders in the market. To alter the value of authorized ... Read More

Usually, all types of securities are traded in capital markets. Therefore, capital markets perform their duties as a place of security exchange and trade without any limits of investments.Capital markets usually perform the following two functions −Maintain LiquidityMaintain Fair Price of SecuritiesLet's discuss these two major functions of capital market in detail −Maintaining LiquidityLiquidity is a measure of speed and convenience of transferring assets into cash. Liquidity shows how much and at what speed do the assets are converted to cash. Capital markets perform the duty of converting assets into cash with a certain speed and convenience. Depending on the ... Read More

Bonus shares are additional shares that a company issues to its existing shareholders based on their existing holding in the company. Companies normally issue Bonus shares when they are not able to pay a dividend to their shareholders due to shortage of funds. In such cases, companies issue bonus shares to their existing shareholders instead of paying dividend. Investors do not have to pay any tax on receiving the bonus shares.Conditions for Issue of Bonus SharesThere are some conditions that the companies must meet in order to issue bonus shares. The most important conditions are usually legal in nature. In ... Read More

Companies in many countries, especially developing countries, may need assistance from the government to sustain and grow. The companies in these countries may be provided with reduced interest on the loans they acquire from the market or investors. These reductions are offered by the governments and are known as subsidies.Subsidized FinancingSubsidized financing is a mode of financing in which the interest on the loans for sourced funds are paid partially or completely by the government. The subsidized financing process is a way to help companies grow and achieve efficiency in financing. The subsidy in interests of loans are one of ... Read More