The Impact Of Dividend Payment To Shareholders On Liquidity And Cash Flow Statement

Sources of finance and cash outflow of a business

The cash flow statement reflects the cash inflow and outflow from the business. It is evaluate that shareholders are the true owners of the company who provide capital to run the business in effective manner. In the second part of this research proposal, .literature review, has been prepared to show case the source of finance and cash outflow which company could have while running the business. This literature review reflects how payment of dividend to shareholders impact the liquidity position and cash flow statement position in effective manner. If company wants to run its business in effective manner with less cost of capital then it has to choose right source of finance which could make availability of finance in timely manner. After that, research design and research methodology have been used to reflect the methods and means which will be used to make effective research on the selected topic. After that project planning and research method have been prepared to showcase the time period involved in completion of research proposal. This research proposal will reflects how the chosen topic “Dividend payment to shareholders impact the liquidity position and cash flow statement position” will provide deep understanding on the use of cash flow statement and sources of finance available for the company.

Organization is accompanied with several set of activities in which various functions are performed with a view to achieve set goals and objectives. As per the perception of Yegon,  Cheruiyot and Sang, 2014 it is evaluated that dividend is the amount of money which is given to shareholders for their investment in company. Ideally, dividend amount given by company to shareholders is completely based on the amount of profit earned by the company and return available for shareholders. There are several companies such as Wesfarmers, G.E. capital, Woolworth and Aldi which have been providing high amount of return to their shareholders with a view to create value on their investment amount. It is evaluated that company ideally distribute less return to investors when it is indulged in some strategies investment decision such as merger, amalgamation, facing distress in business and financial crises.  It is determined that company needs to implement proper dividend policies, frameworks and models for efficient cash flow in business. As per the views of Connolly, 2016 it is evaluated that dividend consist of big amount of cash outflow to shareholders. If company fails to maintain effective liquidity position in the business then it will surely increase the financial and operating risk. This risk could be managed by company by implementing financial and operating leverage factors. Financial leverage is related to risk involved in the business to cover the financial risk. As stated by Iftikhar, Raja and Sehran, 2017 it could be inferred that higher the profit company earns, lower the financial leverage company has from its business functioning. Cash flow statement of company is accompanied with three main activities such as operating investment, and financial activities. This statement reflects how much cash and liquidity company has in its operating, investment and financial activities. It is further observed that if company fails to maintain effective level of cash inflow and outflow from its value chain activities then it will not only hamper the operating activities but also increase the financial leverage on strategic business level. For instance, Tata steel has to face drastic loss in its capital value when it issued dividend to its shareholders. However, there are several companies such as G E capital, Wesfarmers and Aldi which plugged back the capital earning of shareholders in the business for the expansion of business. Dividend policies is the set of guidelines a company uses to decide how much of its earning it will pay out to shareholders. However, as per the perception of shareholders they are less concerned about the dividend policies of company as they could sell their shares in market if they want cash from their investment. Companies ideally follows three main approaches to dividends such as residual, stability and hybrid dividend policies.  The payment of dividend amount in context with the cash flow from the business could be described with the sample example that Let’s suppose that a company named ZPT has recently earned $ 5,000 and has a strict policies to maintain debt/ equity ratio of 5 and liquidity position of 1.2 in its value chain activities. Now suppose, ZPT company has project of capital requirement of $ 1,000. Therefore, now in order to maintain the debt to equity ratio of .5. Now company would raise its capital through issue of debts and shares in market.  Company could issue shares in market by undertaking proper level of debt to equity share structure.  However, if company wants to maintain effective capital structure then company could

The impact of dividend payment on liquidity

As per the views of Kajola, Adewumi and Oworu, 2015 it is divulged that Company has to determine that the amount of profit earned by company should be more than its cost of capital in the business if it wants to create value on its investment. If company finds that it has higher cost of capital then it will increase the overall financial leverage of the company (Corbin, Strauss, and Strauss, 2014).

As per the perception of Fund and Series, 2014 it is reflected that cash flow statement of company should have positive cash inflow from the business. It reflects that if company has positive cash inflow from its operating, investment and financial activities then it will increase the value of capital investment of company and vice- versa. As per the views of Travlos, Trigeorgis and Vafeas, 2015 it is observed that cash flow statement of company liquidity position of company. For instance, if Wesfarmers, Aldi, Morrison and Woolworth do not have additional project escalation amount of cash in their operating activities then at the time of season sales these companies have to observe high amount of loss from their business functioning. In addition to this, cash flow statement of these companies could also be used by other stakeholders to formulate the trend analysis as per the cash flow statement.  Wesfarmers Plc has been following hybrid dividend policies to distribute the dividend to its shareholders. As per this policies, Wesfarmers plc. Has shown that company has been distributing half of its earning to its investors and half of the earning is plugged back in the value chain activities after taking consent of shareholders in general meeting. This study has provided a clear view points of the dividend policies and its impact on the cash flow statement and liquidity position of company. As stated by Bergmann, 2016 it is depicted that ideally, most of the big companies follow Modigliani method for distributing the dividend amount to its shareholders.  Another example could be taken for the Morrison plc. company which has been distributing the dividend to its shareholders only in the case when company has return on capital employed more than its cost of capital. For instance, if company is having cost of capital of 15% in its operating activities and at the same time it is having return on capital employed of 20% then Morrison plc. Will distribute the amount of dividend to its shareholders of 5%. This 5% will be given to shareholders as return and value creation in capital amount invested by shareholders will be determined as additional return to shareholders. Payment of dividend to shareholders is the financial activities which is reflected as cash outflow in the financial activities of organizations. Therefore, it could be inferred that if company has positive cash flow from the financial activities and operating activities then it could issue dividend to its shareholders for their satisfaction. Ideally, retained earnings available for the companies in their balance sheet is the cheapest return available to shareholders. If company wants finance for the particular project then it could opt for the retained earing which will not only reduced the overall cost of capital of company but also provide the easy availability of funds. Cash flow statement reflects all the activities of company which have impact on the cash outflow and inflow of business. If company does not maintain the proper level of cash management then it will surely increase the liquidity and financial risk. There are several companies around the globe which have faced high financial risk at some point of time due to the wrong financial management practice such as Larsen and brothers, Sahara Corporation, and Tata steel company (Israel, 2014).

The three main approaches to dividends

With the increasing ramified changes in business economy and learning styles, there are several research methodologies which are considered as most crucial section of the research process system.  It could be determined as theoretical methods to the field of study which provides deep understanding on the particular subject matter. It includes research paradigms, research proposal and theoretical models. This research paradigm could be dividend as view or lens through which researcher could see the cumbersome process and complexity in the particular subject matter. As per the details given in positivist paradigm, it could be inferred that reality of the topic stated in this research “Dividend payment to shareholders impact the liquidity position and cash flow statement position” should be based on the independent judgment and learning outcomes of the researcher (Rubin and Babbie, 2009).  This paradigm reflects that the knowledge and data gathered by research from the observation should be unbiased and justified. According to this approach, researcher will fist identify the underlying theme and hypothesis on the topic of “Dividend payment to shareholders impact the liquidity position and cash flow statement position” then other search options such as journal articles, books and other secondary data would be used.  However, quantitative research methods would be used with the positive research design wherein systematic and empirical investigation would be conducted. Ideally, quantitative research would introduced the statistical, mathematical and other computational techniques. There are several research methods for quantitative research such as Sample survey, research questionnaire and other monkey only survey. Moreover, research methods could also be categorized as primary and secondary research method (Monsen and Horn, 2007). The primary research method in this project will help researcher to collect the new and unique data exclusively from the research participants and other concerned person. Primary research methods could be costly and time consuming as it involves direct confrontation with the participants and collecting required information through observations and meeting. On the other hand, secondary data could be collected from various sources such as magazines, documents, papers and official gazette. In the present case of this research, survey and questionnaire will be taken into consideration. In this method, survey and questionnaire will be sent to the participants to collect the required information with the help of their email- IDs. Nonetheless, time bar of one week will be given to all the participants to revert on the same. The researchers firstly need to take consent from all the participants that whether he could use these information for his or her benefits or not. All the privacy terms and conditions in this survey will be followed by researcher in effective manner. Another research method could be using sample survey. The researcher could use stratified sample survey and cluster sample survey to make the collected information specific and exact. These both survey will provide the information on the basic of participant’s age. sex and package of salary. These surveys will be useful to customize the research proposal as per the information of different persons and respondents this survey will be conducted with the hundred research participants. All the research participants will be at the managerial post in several organizations (Thomas and Piccolo, 2012).  These data could reflect how Dividend payment to shareholders impact the liquidity position and cash flow statement position. The ethical issues such as plagiarism and using of other works will be taken care in this research proposal to make it effective. However, the researcher will have to follow proper level of privacy rules and regulations while using collected data to determine how dividend payment to shareholders impact the liquidity position and cash flow statement position. Therefore, it could be inferred that by using data and information from the management person at the top level will give the core information about how dividend payment to shareholders impact the liquidity position and cash flow statement position in their business functioning (Monsen and Horn, 2007).

The importance of maintaining effective cash management

In this research, all the data collected method, survey and questionnaire have been selected. All the participants will have to select the option to choose one option out of given four options to answer the question as per their choices (McNabb, 2015).  However, data collected from the survey and questionnaire will be presented through tables and graphs which will help reader to understand and evaluate the collected data with the help of pie graph, bar graph and other statistical tools these collected information could be presented in easy and determined manner. All the data could be analysis through using common mind set and understanding the trend reflected by graphs and scatter graphs (Hair, et al. 2015). This section will help reader to analysis the collected information in effective manner. However, use of graphs and bars will showcase the statistical data in determined approach.

It is the crucial factor of the research which reflects whether the researcher has followed ethical and legal manner to complete the research program. The researcher will comply with all the legal and ethical issues such as complying with all the rules and regulations, following data privacy act in the best interest of general public and justify all the data shown in this research through effective supported references. However, researchers will also show that all the information collected from the different sources are reliable and genuine. The researcher will also consider the plagiarism issue and would abide by all the rules and regulations of academic research writing. He will also ensure that all the information collected has been reported honestly with the supportive justification (Israel, 2014).  Honest means that researcher has not made up any of the data collected in this research or extrapolated any results gathered which could mislead anyone. In addition to this, researcher has to assure that he has avoided bias behavior in this research and used proper research design, method and data analysis technique to showcase a complete research to readers. Moreover, researcher needs to assure that he has followed proper provisions and safety measures for safeguarding the privacy of the research participants in determined approach (Wengraf, 2011).

This project planning reflects how researcher would complete his research after following systematic process system. The timeline is the integral part of the success of the research project which research should follow with high integrity. With a view to develop an effective timeline, researcher has to determine that the time involved to complete the research. The timeline to complete the research will contain all the research activities and time required to complete these all activities (Miller, et al. 2012).

Quantitative research methods

Research schedule	Time required
Development of research and approval time	1 month
Completion of literature review	1 month
Using of research methods and implication	1 month
Use of primary data	2 month
Data analysis and implication	2 month
Final results and interpretation	1 month

This research will be conducted by following proper means and method which will increase the overall effectiveness of this research. It can be determined that research will take time of approximate 8 months. In the starting month approval and consent would be taken from the university. After that, research proposal will be prepared. This research proposal will contains all the core value and intent of this research. However, there will be use of various journal articles, books and literature for preparing this work. After that, various research methods such as primary and secondary data collection method will be used to gather the relevant data. In the end, summary will be prepared to draw an effective conclusion on the topic of dividend payment to shareholders impact the liquidity position and cash flow statement position with a view to showcase the effectiveness of study. This study will help various organizations to identify the benefits of using retained earning which they could use if they do not issue dividend to their shareholders for the growth of the business (Hair, 2015).

References

Bergmann, M. (2016). The rise in dividend payments. RBA Bulletin, 47-56.

Connolly, D., 2016. How a Fund Manager Views Risk.

Corbin, J., Strauss, A. and Strauss, A.L., 2014. Basics of qualitative research. Sage.

Fund, M.B. and Series, P., 2014. Annual Report to Shareholders. Manhattan Bond Fund.

Hair, J.F., 2015. Essentials of business research methods. ME Sharpe.

Hair, J.F., Wolfinbarger, M., Money, A.H. and Samouel, P., 2015., Essentials of Business Research Methods. London: Routledge.

Iftikhar, A.B., Raja, N.U.D.J. and Sehran, K.N., 2017. IMPACT OF DIVIDEND POLICY ON STOCK PRICES OF FIRM. Theoretical and Applied Science, (3), pp.32-37.

Israel, M. 2014. Research Ethics and Integrity for Social Scientists: Beyond Regulatory Compliance. SAGE.

Kajola, S.O., Adewumi, A.A. and Oworu, O.O., 2015. Dividend pay-out policy and firm financial performance: evidence from Nigerian listed non-financial firms. International Journal of Economics, Commerce and Management, pp.1-12.

McNabb, D.E. 2015. Research Methods for Political Science: Quantitative and Qualitative Methods. London: Routledge.

Michiels, A., Voordeckers, W., Lybaert, N., and Steijvers, T. 2015. Dividends and family governance practices in private family firms. Small Business Economics, 44(2), 299-314.

Miller, T., Mauthner, M., Birch, M. and Jessop, J. 2012. Ethics in Qualitative Research. SAGE.

Monsen, E.R. and Horn, L.V. 2007. Research: Successful Approaches. American Dietetic Associati.

Monsen, E.R. and Horn, L.V. 2007. Research: Successful Approaches. American Dietetic Associati.

Rubin, A. and Babbie, E.R. 2009. Essential Research Methods for Social Work. Boston: Cengage Learning.

Thomas, H., and Piccolo, F.L. 2012. Ethics and Planning Research. Ashgate Publishing, Ltd.

Travlos, N.G., Trigeorgis, L. and Vafeas, N., 2015. Shareholder wealth effects of dividend policy changes in an emerging stock market: The case of Cyprus.

Wengraf, T. 2001. Qualitative Research Interviewing: Biographic Narrative and Semi-Structured Methods. Boston: SAGE.

Yegon, C., Cheruiyot, J. and Sang, J., 2014. effects of dividend policy on firm’s financial performance: econometric analysis of listed manufacturing firms in Kenya. Research Journal of Finance and Accounting, 5(12), pp.136-144.