FBS705 Distributions Decisions Flashcards

Vocabulary flashcards for review of distributions decisions lecture.

Dividend definition

A distribution of profit to shareholders in proportion to their holdings (ownership) of a particular class of capital.

Active Variable Approach

Dividends are relevant and affect the value of the company, and must therefore be actively managed.

Passive Residual Approach

Dividends are irrelevant and have no effect on the value of the company; it’s the balancing figure after the financing & investment decisions.

S46 Co Act reqs

1. Existing obligation or borde resolution

2. Solvency and liquidity test passed immediately after

3. Board acknowledges above test

Information content of dividends (signaling theory)

Dividends as an indicator of management confidence in the company; signals that management believes the new dividend (& earnings) can be maintained in the future.

DividendYield

DPS/MP per share = %

DividendPay-out Ratio

DPS/EPS

DividendCover

EPS/DPS

CashDividend

Distribution of dividends in the form of cash.

Dividendinspecie

Distribution of dividends in the form of assets other than cash.

BuyBack

Company acquires its own shares -

shares and the rights associated are cancelled as issued shares; and shares return to the authorised share capital of that company.

ShareSplit

Divide ordinary shares into a larger number of shares with

lower nominal values, reserves are not affected

DividendReinvestmentPlan(DRIP)

Gives shareholders the option to receive their dividend

in a cash dividend, or as additional shares (known as a scrip dividend).

CapitalisationIssue

Capitalise (distributable) reserves by issuing additional shares to existing shareholders in relation (%) to their current share holding (AT NO COST). All shareholders receive shares pro-rata (no-one is excluded; control unchanged).

DeclarationDate

When directors in a meeting decide to pay a dividend.

Ex-DivDate

Decided by JSE, 4 working days before record date

RecordDate

Set by company to determine which

shareholders will receive dividends.

PaymentDate

Dividend paid to those shareholders who were registered on the recorddate.