There are basically two options which a firm has while utilizing its profits after tax. Firms can either plough back the earnings by retaining them or distribute the same to the shareholders.
The return to the shareholders either by way of the dividend receipts or capital gains is affected by the dividend policies of the firms. This is mainly due to the fact that the dividend policy decides the retention ratio and pay-out ratio (dividend as a percentage of profits).Furthermore, the dividend policy of a firm gains more importance especially due to the relationship between the dividend policy and equity returns. Thus, a firm's decision should meet the investors' expectations.
A few models which studied this relationship and the dividend policies of the firm are given below:-
1. Walter Model
2. Gordon Model
3. Miller & Modigliani Approach
6. Inventory Turnover/Stock Turnover Ratio
8. Current Ratio
9. Capital Structure Ratio
10. Average Collection Period Ratio
11. Cash Flow Statement Ratios
12. Debt Ratios
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