Week 11: Dividend policy

Dividend policy

Based on my research, most of investors are more likely to choose dividend payment rather than capital gains, since it needs a long-term period and it can be considered more risky for most of the investor. I think the investors would like to get cash dividend due to additional capital gains from bonus share for them. Based on the theory of “ Bird-in-the-hand” theory most of people will think the long-term gains is more risky rather than existing dividend. All these things above are from the investor perspective.

It brought my attention that there is another perspective from the shareholders and the managers from the company about the dividend policy. The managers and shareholders in the company should consider of how long their company have succeed of the company, because they should consider about the saving more earnings for their expansion or project. My logic says that the investor will maintain their shares if they see the company’s is growing, but if they see the company that they invested stay at the same point they will think twice to maintain their shares. I think the company should increase their dividend in sequence to maintain the investors to keep invest in the company. However, the company which been invested should decide carefully in making the dividend policy, because it can make their company suffers losses.

Everyone must be now about the company that produced the famous iPhone 5, iPad, iPod, MacBook, and iMac, which is Apple Company, in this blog I will take this company as the real firm example. I was very surprised when I see the annual report of Apple Company in 2013; it stated that the cash return with the amount of $45 billion has overdue by three years. The result from this statement bring the shares from Apple Company $10.09, it is lower than before. The boards of Apple Company were predicts the decreasing of the iPhone 5 sales is due to the new of the upcoming Samsung Galaxy 4, which is the toughest competitor of iPhone 5. I am not saying that iPhone 5 having bad sales, but it is not as booming as the first launch.

The research and development team of Apple Company still working hard in order to satisfying and attract more customers by developing new iOS 6.1 for Apple’s gadget. They hope by this development, they will increase their sales and leads to an increase of the revenue. To conclude, it can be seen that Apple Company aiming for the long-term growth strategy of innovation. I think it is better for them to cuts their dividend return to avoid lack of capital in their company and they could focus on the process of the development of their gadgets and technologies. They should compete with the competitive market of technology nowadays in order to make the company keep survive.

Week 10: Optimal Capital Structure

Optimal Capital Structure

Optimal capital structure is categorized as one of the best ratio from debt-to-equity ratio and it can give understanding of the next step of risk in company for the potential investor. The theory of equity financing gives states that in equity financing is more less risky than a loan and also will brings more credibility to our company. Through the equity financing the investor expected in a long-term view return, by then the company will have more cash for expanding their business and accomplish the objective of company. Moreover, in equity financing the company is not required to payback the investment to the investor in the case if the business of the company fail. In addition, the company should consider the disadvantages from equity finance like the investor needs to have the some of the ownership in the company, it is not easy to find the loyal investor for the company, and before the company making a decision, they should discuss with their investor first.

In the case of debt financing, the company can choose for their loan period (short or long term). The company could see the exact interest and the proper principle of the loans and cannot be changed, besides that; the interest from the loan is tax deductible. The most important thing from debt financing is the bank or lending firms does not have a right to take give suggestion or take any decision in the company, because they does not have any ownership in the company. However, the company should consider the period of time, which already sets before, if the company relies to much to the debt, it will make the cash flow of the company got a big problem, and paying debt is not easy in a business, since the debt will be in a large amount and automatically the interest will be high as well.

Nonetheless, the company should consider disadvantages of both ways. In the case of Scottish Widows Investment partnership, this is part of the business from Lloyds TSB group, one of the largest banks in United Kingdom. Lloyds TSB sold 20% stake in wealth manager St James’s place, in order to increase their market price. Based on my opinion, Lloyds TSB choose to take lower debt ration, because they thing with the low debt of ration the investor will more attractive to invest to the Scottish Widows investment. The investor might think the company could handle every situation and finally the investor will get higher rate of return. To conclude, I think Lloyds TSB do the right thing to attract the investor in order to optimize their capital to expand their business or in the case I am the one who will invest to the company, definitely I will invest to the Scottish widows investment, since the company shown a good prospectus for the long term and short term.