Corporate Financial Management For Microsoft Dynamics AX 2012: A Critical Analysis Of Dividend Policy

Background

Discuss about the corporate financial management for Microsoft Dynamics AX 2012?

“Dividend Policy of a firm has no relevance to the value of the firm”. Miller & Modigliani 1961

From the above statement of Miller & Modigliani (1961), it is analysed that value of a firm determines from the investment decisions as well as dividend policies for the same (Aamer 2013). Most of the academic scholars observed that dividend policies entirely affect related means of financing like sale of new equity sales. Main arguments lie in assumptions. It is found that investors do not really care that the dividend received generates from capital gains income or dividend income in an overall manner. Assumptions to this theory include no issuance costs (Barrow 2011). It is assumed that organization who is found paying the issuance costs from the new securities will obtain required equity capital at preferred cost. It influences on past earnings as dividends as well as retaining for the same. Factors include existence of related policy investment in the most appropriate form. From the perspective of Miller and Modigliani, investment policy of an organization largely impacts dividend policy (Bekaert and Hodrick 2012).

From the viewpoint of theory, it includes existence of investors who mainly favours dividend policies for firms irrespective of shared values. It mainly identifies the dividend policy alteration of an organization and ends up losing the stakeholders for other entities (Berry 2011). It mainly presents the dividend policies and lead to temporary reduction for related price of stock within an organization. Investors who prefer new dividend policy should perceive entities for undervalued items for the same. It involves triggered purchasing as well as buying of more shares under the dividend policy. This theory enhances transactions in an instant manner as well as carries cost for the investors in the most appropriate way (Deegan and Unerman 2011). Net outcomes present the value of the stock and altered connections from the related theory in an overall manner.

Modigliani and Miller notes that empirical evidence suggests related changes for the dividend policy. It mainly influences the prices of stock and prefers policies at reasonable as well as stable dividends in an overall manner (Eun and Resnick 2012). Increased dividends specify types of information including anticipated higher earnings in the near future. Dividends perceive conveying essential information on concerned earning prospects from the firm perspectives. In accordance with the theory, it reveals information content for policy dividend as well as influences in share prices for understanding the dividend patterns for the same.

Dividend Policy Irrelevance Theory

“In the real world, dividend policy is relevant to a firm’s value”

It reveals the essence of changed payments for dividends as well as signals concerning with management evaluation for the same. Cash flow analysis and future earnings are analysed for briefing dividend policies in an overall manner. (Eun and Resnick 2012) Management perceives full information from the future profitability prospects and existing shareholders for the same. Changed dividends helps in providing unambiguous indicators that mainly concerns future prospects of a company. Information is conveyed by methods like management presentations as well as security annual reports for changed dividend policy. It affects the dividend changes as well as capital structure for the same (Wink and Corradino 2011).

 From the perspective of investors, it is revealed that dividend payments help in building positive impact for the company. Management should be aware of the uncertainty of dividend payment and unstable impact from the potential investors (Schroeder, Clark and Cathey 2011). It reveals the financial performance especially in financial markets. It mainly influences potential investors in decision-making process as well as investment in the company.

From the above statement by Modigliani and Miller, it does not hold bad dividend policies as well as negative ramification for the same (Schiff and Lewin 2012). It involves negative representation of dividends for the cash flow entities in an overall manner. Special dividend policies affect the issuance of dividend policies in the most appropriate form. It affects cash and cash equivalent especially in the balance sheet. It offers suggestions for generation of reasonable returns. Special dividends involve pay-outs as well as increased EPS in business operations. Most of the authors establish belief that investors prefer stable dividends as well as put market premium in the organization for smooth functioning of business enterprise (Rothenberger and Siems, 2012).

This study deals with critical analysis on dividend policy. According to Miller & Modigliani (1963), dividend policy does not possess enough relevance in the valuation. Dividend policy involves sets of rules as well as regulations and decides on the profit structure for paying the stakeholders for the same. It is noticed that dividends are the key indicator for maximization of attributes like shareholders wealth and share prices in an overall manner (Qu and Yang, 2012). Modigliani-Miller Theory explains the main proponent for dividend irrelevance notion. This particular theory explains the concept from the point of view of investors. It is noticed that investors do not pay much importance in understanding the dividend history of the business organization. The above theory gives direct contrast on “Dividend Relevance Theory” for understanding the importance of valuation of particular business enterprise (Madura 2012).

Implications of Modigliani Miller Model

On critical analysis, it is relevant to understand implications of Modigliani Miller Model. Merton Miller proposed this particular model in the year 1961. They decided on factors like dividends as well as capital gains equivalency in considering the return on investment for the same (Leo et al. 2012). This model affects the valuation for company based upon earnings for getting direct results in investment policies from future perspective in an overall manner. It is important to consider the fact that investment policies needs additional inputs from the dividend history of particular business organization. Addition to that, investment decisions depends entirely on the investment policies in the most appropriate way (Kapil 2011).

From the above statement, it is critically analysed that theory indicates irrelevance from the arbitrage argument. Logical ways includes dividend distribution for dividends and related distribution for the shareholders for offset in external financing in an overall manner. Distribution of dividends includes the decreased price of stock and nullifies the gain attributes made by the investors in way of dividends for the same (Grieve 2013). Emphasis relies mainly on cost of debt as well as cost of equity purely affected by advantage in the near future. This particular theory suggests related assumptions including perfect capital markets. It includes rational investors for assessment of free information and related transaction costs for the same. It influences large investors based upon the market price of the share in the near future. Taxes possess no existence for dividends and capital gains attributes at the same rate. Business organization should not change with existing investment policies. It involves new investments financing through retained earnings. Investors should analyse future market prices as well as dividends for the same (Greene and Dince 2012).

The above statement on Modigliani Miller ensures empirical evidence on matters relating to policy dividends in an overall manner. This particular theory faces several limitations that need urgent attention for future analysis. This theory shows no difference between internal as well as external financing for the same. It mainly focuses on shareholders wealth for the affected dividend in the most appropriate way (Gapenski and Pink 2012). It enhances transaction cost in association with selling shares for making cash inflows. Most of the investors prefer dividends in comparison with other external factors in an effective manner.

On critical analysis, it is revealed that Modigliani Miller dividend policy helps in valuation of shares in an appropriate way. This is one of the popular models that mainly believe in irrelevance of the dividends in an overall manner (Eun and Resnick 2012). This policy mainly suffers by vast limitations and criticizing with certain assumptions for the same.

Pros and Cons of Modigliani-Miller Theory in Explaining the Importance of Dividend Policy

Business Risks

Imperial Tobacco faces risks including financial, social as well as environmental for the same. This company reviews the policies and risk management procedures in order to ensure protection for the shareholders in an overall manner. This particular company faces illicit trade in tobacco accounts around 12 percent especially in the tobacco market (Aamer 2013). It increases the growing problems for the legitimate tobacco industry and fails to recognize relationship with regulations and elicit trades for the same. Financial risks involve reduced disposable incomes, cheaper products as well as consumer look in the most appropriate way. Illicit trade involves smuggled genuine tobacco products, illicit whites as well as counterfeit tobacco (Barrow 2011).

Imperial tobacco faces business risks involving high illicit trades leading erosion for demanded legitimate tobacco products. It increases damage and spoil brand integrity and loss of overall potential earnings (Bekaert and Hodrick 2012). It affects the reputation of the business firm for future organizational operations in an overall manner. This company faces substantial increase in excise duty as well as unfavourable change in tax treatment. It adapts from the demand products as well as future profile development on an adverse manner.

Imperial tobacco faces financial risks involving increased level of excise duty. It should encourage consumers for higher priced cigarettes and low-priced cigarettes for fine cut tobacco. Increased excise duty involves encouragement from legal point of view (Berry 2011). It will reduce illegal cross-border trade from related countries for the same.

It mainly affects the sales as well as cost influencing restrictive regulatory practices in and around the world. Imperial Tobacco engages regulators for development of related regulatory proposals for the same (Albrecht, Stice and Stice 2011). Future changes will bring immense regulatory actions for increased cost and contribution for related illicit trade in an overall manner.

Financing Risks

Imperial Tobacco faces potential cost and cash management problems. It mainly includes committed debts for financing in debt markets as well as bank loan markets for the same. It expects refinancing structure and valuation of debt policies (Balla 2012). It matures on availability of committed funds especially from bank counterparties availability for the same. Imperial Tobacco is unable to refinance the debt structure at the time of maturity. It influences the debt capital markets and related loan markets in the near future. Addition to that, it enhances increased refinancing debts for maturity issues and high current costs on an adverse way.

Imperial Tobacco faces reduced availability of financing in their business operations. This is because of inclusion of bank counterparties and unable in managing commitments. It fails to deliver funds and commitment as and when required (Baltazar 2012). It is noticed that material parts of Imperial Tobacco influences fixed levels of interest. It exposed from the interest rates resulting the higher cash inflows for the same.

Imperial Tobacco fails to manage the refinanced debt and higher interest costs. It involves low profitability, credit rating as well as ability for operating in going concern in the most appropriate way (Barrow 2011). Addition to that, company includes limited ability for borrowing additional funds and reduces level of flexibility in an overall manner. It involves competitive as well as industry pressures and high opportunities in the most appropriate way.

From the annual report of Imperial Tobacco, Finance Director recognized achievement of positive financial outcome in the year 2010. Further, it is noticed that positive financial performance engages in effective utilization of cash as well as cost management in an overall manner (Bekaert and Hodrick 2012). In the year 2013, net revenue ensures from sale of tobacco reduce with one percent. On the contrary, net volume reduces with seven percent as well as offers future gains in the most appropriate form. Financial performance reflection influences in the emerging markets for future gains. In the operating environment, it includes related fees for logistics distribution and reduces in the 5% economic headwinds especially in the European region (Berry 2011). Addition to that, Imperial Tobacco faced increase of one percent in the operating profits. This ensures favourable financial performance especially in emerging markets. Gain realization includes in markets like USA, Russia. There was consistent decline in the net revenue as well as volume especially in Spain (Deegan and Unerman 2011). Illicit trade gets affected by increased duty. It affects changes in duty as well as deregulatory factors in markets especially in Morocco.

From the financial statements of Imperial Tobacco, it is understood that financial statements undergoes going concern basis for historical cost convention policies act in the year 2006 (Eun and Resnick 2012). In accordance with Section 408 of companies act, it is revealed separate profit and loss account preparation for each particular company.

In the year 2015, it is noticed that shareholders continues in building quality as well as attainment of sustainability for business activities in the most appropriate way. It mainly focus on goal maximization, cost as well as involving cash opportunities for achieving targets as well as further transition for the same (Gapenski and Pink 2012). Financial performance of Imperial Tobacco influences transition programs and strengthening business for future growth policies in an overall manner. 

Investments

Imperial Tobacco comprises investment from the subsidiaries as well as shown in the provision for impairment for the same.

Dividends

Imperial Tobacco ensures paying final dividends for recognizing the liabilities for the period. It approves by the shareholders, dividends receivable as well as asset recognition in an overall manner (Greene and Dince 2012). It enhances interim dividends for the time period and related financial information in the near future.

Financial Instruments

It includes non-derivative financial instruments in form of debtors. Debtors get recognized from the fair value and amortised for cost allocation in relative effective interest method for the same (Grieve 2013). It enhances impairment for established receivables for objective evidence for original terms of receivables in an overall manner.

Dividend per share in respect with current financial year of Imperial Tobacco

Dividend per share	2014	2015
Interim	29.2	22.3
Final	55	50
Total	84.2	72.3

Interim dividends are paid from recognizing second half of the year and final year for one complete financial year.

Distribution from ordinary shareholders of Imperial Tobacco

€ million	2014	2015
Final Dividend from the previous financial year	666	545
Interim Dividend	285	156
Total	951	701

Investments

Cost of shares in Imperial Tobacco

€ million	2014	2015
1st October	3450	1090
Additions	–	1500
30th September	3450	2590

Debtors

Imperial Tobacco recognized falling debtors owned by group undertakings in an overall manner.

Reserves

€ million	Share Premium Account	Profit and Loss Account
1st October 2015	5560	1119
Profit for the year	–	2807
Dividends	–	(892)
Purchase of own shares	–	(182)
30th September 2015	5560	2852

Profit for the year

From the financial statement of Imperial Tobacco, it is evident to calculate profit for the current financial year (Horngren 2013). It influences profit attainment by shareholders and deal with financial statements. It includes audit fee charge of around € 0.4 million at relative cost.

Treasury shares

It involves the shares purchased from the buyback programme for detainment of deduction from shareholders’ funds in an overall manner. It includes purchase group of 867000 shares at cost of around € 182 million in the near future (Horngren, Harrison and Oliver, 2012).

From the annual report on Imperial Tobacco, it is evident to understand the company achieved consistent increase in debt capacity from the year 2008. Attribution of increased debt influences acquisition in early 2007 (Kapil 2011). It undertakes mandatory information on large borrowings from Imperial Tobacco. Debt accumulated gradually reduced and fast rate from the past few years for the same.

Imperial Tobacco main source of financing involves sale of shares. This company believes in creating value to its shareholders. Addition to that, sources of finance of Imperial Tobacco derives from sale of excessive diverse brands in an overall manner (Leo et al. 2012). This company makes effort in generating good profit in the business as well as prioritize positive returns on growth in the most appropriate form. These company manufacturers:

Fine Tobacco

Smokeless Tobacco

Paper

Cigar

These product and diverse brands access generating huge record in getting positive returns as well as accounts for more than 12% of total tobacco. Imperial Tobacco believes in conducting policies on adequate capital funding and committed bank facilities for the same (Libby, Libby and Short 2011). This approach helps the company in meeting the unforeseen borrowing needs especially in the peak periods in the near future. This particular company entered into related assets as well as brands in exceeding bank facilities over 7.7 billion euros (Madura 2012). Imperial Tobacco continuously revolves around credit facilities as well as term loans in an overall manner.  

From the annual report of Imperial Tobacco, it is recommended that optimal capital mix reveals the best debt to equity ratio for maximizing in the value in the business operations. It mainly offers the company balanced debt to equity range ensuring minimization of cost of capital of Imperial Tobacco (Schroeder, Clark and Cathey 2011). Optimal capital structure ensures great deal of attention for maximization of value for the shareholders of Imperial Tobacco. It is recommended to increase in processing equity and reduction of debt for smooth functioning of business activities. It should reduce in the amount of equity for available returns providing improved shareholders for the same (Scott 2011). It helps in creating favourable image as well as perception from the investors of Imperial Tobacco. It ensures open market policy and adjusted earnings per shares.

It is advisable that Imperial Tobacco should generate cash and harbours related capabilities for significant amount of debt in the near future (Spiceland, Thomas and Herrmann 2011). It should make ways in providing effective optimal mix strategy for the investors and shareholders for the same. It should continue with reasonable mix of equity and debt in the main capital structure decisions in the most appropriate way (Wink and Corradino 2011). It endeavours constant dividend policies and dividend pay-out ratio in an effective way.

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