Question

Why is the cash distribution policy (the level, the form, and the stability of cash distributions) very important for a company?

Answer 1

The cash distribution policy are framed for the purpose of payment of dividend.The different choices of distribution are as follows :

The level of cash distribution :- Company has to decide how much they will pay as a dividend and how much amount would be retained for the future Investment purpose.

The form of distribution : Cash can be distributed in the form of cash dividends or in the form of share repurchases and it is very much important to decide the form before any distribution.

Stability of distribution :- Dividend distribution to shareholders must be stable every year otherwise shareholders of the company will lack confidence in the company.

Since company has to make various decisons as mentioned above so cash distribution policy is very much important for the company.