Question

The management of Subodh Ltd. manufacturing plastic bags has more than 50% shareholding in the company. In a financial year, financial performance of the company was not good but the management declared 20% dividend on equity shares. As a result, price of the shares increased substantially. The management personnel took opportunity, to sell shares of the company through stock exchange. In the general meeting of shareholders of tire company, the management voted against payment of dividend, consequently dividend was not paid inspite of having enough funds.

(a) Identify the type of financial decision involved in the above case and explain any two factors which affect such decision.

(b) Mention the values violated by the company.

Answer 1

(a) Dividend Decision

Factors affecting dividend decision:      

(i) Amount of earning: If amount of earning is high, the company may pay higher dividend and in case of less amount of earnings, dividend may be lower.

(ii) Stability of earnings: If stability of earnings are there more dividend can be paid in comparison of fluctuating earnings.

(b) (i) Sensitivity towards environment : by manufacturing plastic bags.

(ii) Honesty: by misusing authority for their benefits without disclosing true facts to the public.