Dividend Policy- Determinants

Dividend is that part of profit that is distributed among the shareholders of the company .
The payment of dividend includes legal and financial formalities. It is difficult to determine general dividend policy which can be followed by a firm at different situations.


Magnitude of earnings
As dividend can be paid out of present and past earnings, trend and magnitude of earning becomes the starting point of consideration. Moreover retained earnings of the past generally go in investment and hence the amount of profit determines the dividend policy.



Future financial requirement
Dividend policy is also affected by firm’s future capital needs. Funds are required for diversification, expansion and tapping new opportunities. Firm looking out for such options may retain profit and may neglect announcing dividends for the current year.

Income tax
Dividend policy is tremendously affected by the income tax regulations. Income tax may affect the total profit of the company leaving behind a very small amount to be declared as dividend. Moreover if dividend income of the shareholders is heavily taxed the company may not announce dividends on a regular basis in order to safeguard the interests of its share holders.
Age of the company
A newly established business may not declare dividends as its major objective would be to increase the retained earnings that can be used at future period of time.Declaring dividend will result in lack of liquid resources which can limit the establishment in taking advantages of upcoming opportunities. Where as an old establishment can follow a liberal dividend policy because of its piled up profits from the past.

Liquid resources
Dividend can be paid out only when the firm has full control of its liquid resources like cash, marketable securities etc. Lack or requirement of liquid resources in near future goes up in deciding the type of dividend that has to be declared.

Institutional investors
The firm has also to keep in consideration the demands of its institutional investors which helps it time and again. Institutional investors like bank, financial houses etc generally favors a regular payment of cash dividends. Since these investors play a pivotal role in providing financial aid to the company, the company has to mould its dividend policy accordingly.

Finance Manager- Functions

The changed business environment has increased the role of finance manager. Increasing pace of industrialization, rise of larger-scale units, innovations in information processing techniques and intense competition has increased the need of financial planning and control.

Financial forecasting and planning
Finance manager has to estimate the requirement of funds to acquire assets. The decision has to be taken keeping in mind both the fixed capital and working capital requirement. How to acquire such funds and when to apply the raised funds is the crucial role of a finance manager.

Acquisition of funds
Funds can be raised from many sources such as banks , equity market , financial institution etc. Main role of the finance manager is to look out for the most cheapest source of finance after reviewing the pros and cons of each source that is available.

Investment of funds
Funds should be used in the best possible way. It should always be kept in mind that return on investment must be always higher than the cost of acquisition.
After the funds have been acquired it is the role of finance manager to allocate it to various areas of requirement. Such areas may be fixed assets, working capital or investment in other sources.
A finance manager has to keep the principles of safety, liquidity and soundness while investing funds.

Helping in value decision
Merger and acquisition has become a common phrase in this competitive market. A finance manager must help the management in such a valuation and must understand various methods of valuation of shares and other assets so that correct values are arrived at.

Maintaining proper liquidity
Maintaining liquidity is very essential for a business concern to finance short term capital need, day to day working requirements and to take advantages of sudden market opportunities. Finance manager has to take decision on the degree to which liquidity has to be maintained so that funds are not kept idle.

Working capital- Determinants

Working capital refers to that part of firm’s capital that is required to finance current assets of the company such as marketable securities, debtors, inventories and cash. Working capital comprises of funds that is used for wages, salaries and day to day expenses of the enterprise.
Working capital holds a very important place in the enterprise and must be planned carefully and strategically so to avoid unnecessary outlay of funds and simultaneously optimize profits.



Nature of the business
Financial firms and trading firms requires less working capital as funds are not tied to inventories. Whereas manufacturing concerns need large working capital to finance inventories to carry out the production cycle smoothly.

Scale of Business
Working capital is also determined by the scale of business and its turnover. Small scale business requires very less working capital when compared to the large scale businesses and Giant concerns. One has to determine such activities of the concern before making provisions for the working capital requirements.
Production Policy
Production depends on various factors like seasonal fluctuations, availability of raw materials etc. If production carries out continuously throughout the year then it would demand high working capital. Whereas in business where production is carried out seasonally, less working capital is tied up.

Rate of Stock turnover
High rolling stocks helps in realization of sales money whereby reducing the additional requirement of working capital. Dead Stocks and low turnover results in large sum of funds to get tied up.

Working capital cycle
It is the cycle that begins from purchase of raw materials to realization of cash after sales. It includes phases like work in progress, finished goods and sales of finished goods. The larger the cycle more would be working capital needs.


Credit Policy
It is often defined as terms of sales and purchase. An enterprise purchasing raw materials in cash and selling out finished goods on credit will require more working capital when compared to enterprise purchasing raw materials on credit and finished goods in cash.
Length of credit also has a substantial bearing over working capital requirements.

Synchronizing and correlating such factors and estimating their trade offs have helped large organization to grow as giants.

Stock market investment – Bull or Bear

Stock and shares, commodities , bonds have always remained on the top list when one heads towards the financial community. How market would play is an all time question whether it comes to an economic crunch or it comes to a boom.

Predictions have proved to be useful techniques helping an investor to take decisions regarding investment and divestment as well. Technical analyst give their predictions based on comparative study with past data, trends, cycles, price movements and ratios of a particular scrip , company, industry or market as a whole

Fundamental analyst forecasts on the basis of intrinsic values of the stock, sales, profit, taxes, growth of the company etc.

However, there are as many factors that has the bearing over share prices and the market as well. Such factors include national and international economic health in terms of GDP, inflation, prevailing tax rates , Foreign direct investments , foreign institutional investment, foreign exchange, climatic conditions, political situations, company’s performance in terms of profit and loss, reserves, capital structure, projects and many more.

Besides all such factors I would like to rate “Sentiments” as the driving factor which indicates the market to be “Bear” or “Bull”

Here are some guidelines which would help my friends who want to have some investment in the stock market. I am sure it is going to help you a lot as it helped me reaping good returns .These guidelines have come from market experts and ten long years of my investing experiences and analysis.

Be sure- Investing, speculating or gambling

The very first rule of the market is to understand your own intentions whether you will behave as an investor to reap steady returns gradually, with nominal risk on long term investment, or speculator to reap fast returns with high risk on short term investment or as a gambler to earn abnormal profits with infinite risk irrespective of the time horizon.

Study the market

Having clear intentions of your stand , market study becomes the most important aspect of investing. Collect information about the economic conditions of the country and projections of its future movements. When economic conditions such as GDP , saving ratios, foreign exchange reserves of the country are stable and increasing it’s the right time to invest and vice a versa. Steady growth in economy helps out investors and fluctuations favors the speculators

Do not put all eggs in one basket

It is the golden rule of the market and investment. Be sure of what you are investing in. Making investment blindly in every scrip would bring your portfolio to a no profit no loss situation and even huge losses. Be very choosy about scrip by looking to its past paerformances, dividend rates, expectations of further growth, recent projects and its synergy with other industry performances.

Wait for the right time

Right time to sale and right time to purchase is the factor which will benefit you the most.

Invest at a time where the share prices are to maximum low (bottom line) and divest when it stop rising up. But the point is how to determine the optimum time? This can be determined by reading cycles of that individual stock in various economic conditions.

Boom triggers investment and depression aggravates divestment.

However , recession and depression in the economy can also be an ideal time to start investment or even speculation because of the fact that shares can be availed at all time low prices and then tends to shoot up. The only fear factor is chances of delisting which is very low in case of Big player and even for blue chips.

Tips

Here I am talking about advices one should take from equity research companies, brokers and investment houses. They at times really get hold of some very useful and internal information about a particular scrip or company which will be fruitful for investing.

I don’t know how to succeed but I know overconfidence is the key to failure. It is better to be equipped before war rather than asking for a sword in middle of the battlefield.

Investment opportunity in Gold..

Gold, a very promising term in all seance. Since the ancient past, people keeps investing in gold for being one of the most precious & treasurious commodity across the counter. still today, the common concern over accumulating gold persists resting upon it's universal appeal, acceptance & applosure, however the perspective varies widely. Previously, most of the Asian as well as europian familis kept populating gold to show of their prestige over others. Moreover, these funding in gold were never ment for resale unless the situation demands drastically. However, in recent term, the interest is still intact, but the opportunity of making profit subsides over prestige. Henceforth, Gold opens up an opportunity for either making out profit in commodity market through hedging & all or holding for long term for wealth maximization. Moreover, ongoing turmoil in stock market & subsequent devaluation in dollar makes more sense in investment in Gold as it's growing up as a consistent performer over the years. Lets discuss upon both the options to find out the most prudent & profitable one. In commodity market, investment in Gold is an inevitable trading option. Over the last several months, it shows a much promising uptrend in spite of global economic slow down. Henceforth, as the opportunity in equity market is not quite sure, one can rest assure upon Gold option. Again, counting up on gold coins, bullion etc can be a safe investment option for longer term as well. Moreover, investment in Gold proves out to be more prudent as even the World's Federal Bank is opting for more & more Gold reserve to ensure their financial standings & stability. However, keeping in view of resale factor, small coins & bullion can be ideal.

InVestment in CoMModities: An IneVitable tRading opTion..

In recent times, a coroborative curicity pops up among traderes across the countries in commodities & their tradability. Many of them beting over these commodities as an inevitable investment option in coming days. But.. all these words are more prospective over present perspects. Lets find out what these commodities actually do mean.

Commodites can be largely termed as goods having a little distinctive aspect. What differs them from common term is their world wide avilability & acceptability along in the line of consistency with a least variation in standard & quality. Lets take few examples of commodities that are commonly in use like precious metal(gold, silver, copper etc), agricultural products such as rubber, corn, rice ,sugar etc., energy & industrial resources like crude oil, coal & aluminium etc. However their respective trading value varries in accordence with their tradability.

Now lets see how traders play in this market. Although here we deals in commodities, it doesn't necessorily mean that we need to buy or sell commodities in physical sence. Moreover, what actually do mean is to buy a future contract of an underlaying commodity at a certain price at a certain future date more like future trading in equity market. Accordingly, in the mean time the daily price of such commodity varries accordingly. the extent of these varrietions effects in fixing up future contract price. In technical term, commodity trading commonly practices in derivative tools rather than dumping up for further deal in real term.

As I have stated earlier, commodity market gradually growing up with global applosure. Now days commodities are traded accross the countries in various exchanges like Chicago Mercantile Exchange, Australian Securities Exchange, the Tokyo Commodity Exchange etc. These exchanges facilitates the platform for plotting future course of contracts. Now, unlike eqity market, valuation of a commodity depends upon several events strats from environmental to social,political & economical outlooks. For exampale, price of crops varries yearly in accordance with change in climate & it's favourability. Similarly, for crude oil the pricing depends up on economical & political stability of eastern countries as well as economic conditions of other countries. These seriees of fluctuations among commodities helps in fueling momentum in to the commodity market. Accordingly for a trader, need to predict the future contract price taking the factors like cyclical trend in supply & demand, social, economical & political aspects as well as future viability.

Comodity Trading: an emerging Investment option..

Commodities can be defined as goods having wide demand & doesn't differ much in terms of quality. On the basis of such standardized quality, these goods are considered as an useful investment as well as trading options. For instance, gold, silver, crude oil etc doesn't differs much in due course. Apart from these, other popular traded commodities are.. precious metals like gold, silver, copper etc. , agricultural products such as rubber, corn, rice & sugar., energy & industrial resources like crude oil, coal, aluminum etc.

In recent times, may investors & traders are taking their bet in to the commodity market as an inevitable invest option.

How to get rid of a bad investment decision..??

Investment in equities involves lots of risks & once an investor plays off such risks, can be rewarded with a lump some amount of return. Henceforth, it is essential to get rid of these risks to ensure a relishing return. Although we can’t mitigate the risk totally, can be taken to a minimum level on account of certain attributes such as..

PE ratio: Price Equity Ratio is determined taking EPS ( Earning per Share) in terms of current market price of that particular equity. This ratio signifies the extent of variance in valuation of an equity corresponding to it’s book value. As such, it is always apprehensive to invest in those equities having a lower PE ratio as these stocks are appeared much safer in times of market downturn.

ROI: Return on Investment is another vital consideration in order to be assure that the equity of the company, in which the investment to be made, having sufficient earnings over it’s total cost of capital. In this aspect, the gradual trend in ROI over the following years are also significant. An usual fluctuation of earnings for several years makes a suspicious sense upon it’s performance. Further, a common check in to consistency & growth in NP ratio can give more comprehensive picture.

Moving Averages: Moving average in price of equity for a certain period (generally 50 & 200 days) also depicts a rough idea upon its further movement. If a stock falls below it’s moving averaged price, it would be advisable to avoid that stock at least for a certain period. In this context, another relevant aspect could be comparing the movement of that particular equity in accordance with index performance.

Trading Volume: The amount of transaction took place in a day for that particular equity is another material consideration. Trading volume also hints up on the extent of happenings going on for that stock.

Information Relevancy: Any positive updates relative to the equity of that company blows further buzz among the investors.

STOCK MARKET as an invitabe investment option in 2009: few trading tricks & techniques..

In my previous article, I have spared many words on stock market options as an optimist. Let’s find out few investment tricks & techniques that can facilitate more oxygen in to our optimism.
Firstly & most importantly, self assessment of an individual investor is essential. Before stepping in to investment decisions, one need to rest assure on his or her personal projection over the market scenario for the coming months. Once an investor is ready to enter in to, need to ensure upon his/her risk taking capability & hence concerning up on such extent of risk & expected return, his/her further investment decision should be designed. Now, at present, as nothing much left to navigate the market sentiment, I would rather suggest to make a systematic investment plan(SIP) i.e., investment in small bulks at a regular interval spreading over a specific period, than opting for a one time bulk investment. Further, before applying for an equity, it is essential to evaluate properly on the prospect & potentiality in terms of time factor. Here, effective evaluation can be done in two ways, fundamental & technical analysis. Fundamental analysis includes study of financial position for the present as well as previous fiscals, ratio analysis, identification of the objective of the company through memorandums & articles, also need to ensure upon the extent of stack holdings among management, efficiency of the management, if any legal proceedings or suit pending against that company & any other ambiguity in conformation with the guiding rules & regulations etc. On the other hand, technical evaluation of past performance of a share sometimes facilitates a fair picture of the furure. In this context, few measures like moving averages varying the number of days, also formation of several types of chart pattern signifies the extent of soaring of a particular script. However, although technical analysis is a very tactical part in trading activities, most of us are not quite acquainted with these aspects. Hence, few factors can be sorted out from both the analytical aspects to justify our investment decisions like PV ratio, present status in terms of 50 days & 200 days moving averages, positive updates, return on onvestment(ROI), market capitalization & trading volume up on that particular script etc.

STOCK MARKET as an investment option in 2009: opportunites, & few optimistic opts..

In spite of sloppy socio-economic situation everywhere around, we need to set forth a strategic approach in order to cah in the future favorable. Hence it will be apprehensive to work out a further analysis of the market scenario in later half of the current fiscal. As many of us believes in opening up of a probably investment opportunity in coming months, lets find out few justifications..

Firstly, in accordance with the events like merger, acquisition & all many more new establishments will be emerged up along with much prudent potentiality & undertakings & in course of reconstructing their capital base, have to come up with public offerings in capital market. Henceforth,these initial offerings can be a rewarding opportunity for us.

Secondly, apart from stock specific strategies.. if we shift a bit to the sector specific, the following sort outs can be significant. Among the several sectors severely suffered, there are few priority sectors like housing & constructions, power & even financial service sector like banking, insurance etc are prima-facie, more precisely, these sectors are bound to bounce back banking on continuous population growth & consequent gradual saturation of residential plots, huge demand of capital for business promotions & reconstructions along with economic turn around, more expansion of power etc are the core factors to be concerned upon.

Thirdly, as we all know fluctuations in interest rate, repo & reverse repo rate etc are also acts against stock market movements are likely to be revised further in near term. Currently these rates are quite relaxed to favor flow of fund in to the system. However, once the economy will be sufficient enough to sets in, these rates will be revised further & accordingly it will attract more attention towards the equity market.

Fourthly, all the global stock indexes are very much economy sensitive. As such a minimum sense of economic instability amounts in to a major insecurity across these markets. Hence they used to crash before the economy cramps in & recover once the economy is restored back. Accordingly, we can conclude that eyeing upon the economic stability & standings for the upcoming few months, more comprehensive decision can be taken up.

STOCK MARKET as an investment option in 2009: few precautions..

As I have mentioned earlier, many equity analyst of major fund houses projects that 2009 could be a year of opportunity. Accordingly as per our common intelligence it is not much tough to presume that there must be a turn around in trading market sooner or later. Hence if we invest as per recent tem we can expect a higher return in future but there are three major considerations in this aspect.:

Firstly, most of the optimists projects that opportunity can be open up in the latter half of the year as all of them are yet to conclude whether the worst part is over. Hence none can rest assure that the global stock market can’t go down further. In this context, the ideal level of entering is still to be estimated. Hence, people are more reluctant to return back in fear of further loss.

Secondly, if we presume that nothing much left out of worried factor & there will be a hint of gradual growth from the later half still it is tough to predict what will be the exact turn around time for market to back in tract.

Thirdly, in course of economic turbulence events like amalgamations, mergers, absorptions & winding up among many major companies is quite obvious as most of these companies rests in balance sheet manipulations at least to an extent. Although the entire scenario can be a bit prominent to predict once their first quarter result is declared. Henceforth, which sector will lead the race or more precisely what are the stocks under which sector will be a good bet is troublesome to project at present point of time.

STOCK MARKET as an investment option in 2009: Lets have a glance on the global stock market scenario at present..

In course of the current economic downturn all the major stock markets across the globe are trading at their bottom level. Let’s have few snap shots of how the stock indices in most of the countries have been rattled off significantly on recessionary roll out. To start with, the penetration had populated with the Standard & Poor 500 stock index’s downfall of 10% accordingly in december07 after a huge hit in october07 & subsequently further slides of 26% in january08 fueled a world wide worry among traders. On the other side, deflation in US housing market & it’s consequence among multinational financial players like global banks, investment houses & in insurance sector led to a lump sum loss(50-60%) in major indexes like Nasdaq & Dow. Accordingly stock indexes of other countries had to hardship the heat & suffered severely as Sensex in India has felled down from it’s all time high around 21k to 8k, likewise Nikki in japan has lost it’s ground approximately 42%, the Russian stock market has lost 65.5% of its value & subsequently followed up by Hang Seng & all. As most of the fund houses & banks are running short of money so as many retail individuals, there is nothing much left to pull back the momentum.. As such, for an orthodox optimist, no more words left to opine up on except taking the entire scenario as an opportunity. In the following article, let's depict a detail light up on to what extent we can take the ongoing turmoil as a turning point.