The financial manager is concerned with dividend decisions. The financial manager must decide whether the firm should distribute all profits, retain earning, or distribute a portion and reation the balance. The financial manager must determine the optimum payout ratio, which maximizes the firm's value.
Distribution of profit among shareholders is known as dividend decision. Dividend decision is closely the related with financing decision . Dividend decision includes the decision regarding the retention of profit and profit is retained to meet the need of fund. Therefore dividend decision is also considered as internally financing decision. Critical part of dividend decision is to decide the dividend pay out of ratio. Dividend payout ratio is the proportion of retained earning and dividend out of firm's net profit.
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