Answer to Question #294368 in Management for Getahun

Question

What is the type of capital Structure & dividend policy

. Introduction

.Type

.Benefit.

. Conclusion

Answer 1

The combination of capital categories that a firm uses to finance its operations is called its capital structure. It is expressed in ratios such as debt-to-equity or debt-to-total assets. Dividends are the payments that stockholders receive as return on their capital. The traditional opinion was that dividends and capital structure decisions could increase firm value, even under idealized conditions.

The meaning of Capital structure can be described as the arrangement of capital by using different sources of long term funds which consists of two broad types, equity and debt. The different types of funds that are raised by a firm include preference shares, equity shares, retained earnings, and long-term loans. On the other hand, there are three types of dividend policies; a stable dividend policy, a constant dividend policy, and a residual dividend policy.

Capital structure also provides flexibility in raising funds. One advantage to equity financing for small business is that it is generally more available than debt financing. If your business is unproven, lenders have nothing to base future cash flows on. In addition, the reasons why dividends matter for investors include the fact they substantially increase stock investing profits, provide an extra metric for fundamental analysis, reduce overall portfolio risk, offer tax advantages, and help to preserve the purchasing power of capital.

Finally it is concluded that capital structure and dividend policy are positively

correlated with each other in manufacturing industry of Pakistan. It means that decision of

capital structure and dividend policies have impact on each other and should be considered

simultaneously.