Briefly describe the residual dividend policy. The residual dividend policy means that the net income obtained by the company's production and operation should first meet the company's capital needs, and if there is surplus, dividend distribution will be carried out. If there is no surplus, there will be no dividend.
theoretical basis
The theoretical basis of residual dividend policy is MM theory of dividend independence. This theory was first put forward by American financial experts Miller and modigliani in the famous paper "Dividend Policy, Growth and Stock Value" published in 196 1, so it is called MM theory. According to this theory, in a complete capital market, the dividend policy of a joint-stock company has nothing to do with the stock price of the company's common stock, and the dividend distribution level of the company will not have a substantial impact on the wealth of shareholders. Company decision makers don't have to consider the company's dividend distribution method, and the company's dividend policy will be determined with the formulation of the company's investment and financing plan. Therefore, under the condition of complete capital market, dividends depend entirely on the surplus of investment projects, and investors have no preference for retaining profits or paying dividends.
Discussion on the policy of residual dividend distribution This paper briefly discusses the reasons and application of implementing the policy of residual dividend distribution, and expounds its own views on several problems that are easy to be blurred in practical operation.
Dividend distribution refers to the distribution of dividends to shareholders or investors, which is an important part of enterprise profit distribution. According to the relevant provisions of China's Company Law, distributing dividends to shareholders or investors is the last link in the profit distribution procedure. The after-tax profit of this year can be distributed to shareholders or investors after making up the losses of previous years and withdrawing the provident fund and public welfare fund. This part of the profits can be distributed to shareholders or investors and can stay in the enterprise. In fact, the dividend distribution policy is to determine the proportion of this part of after-tax profits, and then it involves short-term interests and long-term interests, and whether the relationship between shareholders and enterprises can be handled well. To some extent, its choice also affects the price of shares issued by enterprises, the market value of enterprises and the refinancing ability of enterprises. Therefore, a comprehensive understanding of dividend distribution policy is conducive to the choice of dividend distribution policy of enterprises.
In the practice of financial management, the common dividend distribution policies of enterprises include surplus policy, fixed or sustained growth policy, fixed dividend payment rate policy and low normal dividend plus extra dividend policy. The author analyzes several problems involved in the distribution policy of residual dividends.
First, based on the principle of economic advantage, according to the proportion required by the capital structure, the funds needed for investment are retained from the after-tax profits of the current year, and the rest are distributed as dividends.
Due to the principle of economic advantage, under the premise of determining the target capital structure, enterprises should first supplement their funds with retained profits; Secondly, the financing method is long-term interest-bearing loans; The last choice is to issue more shares. The residual dividend distribution policy is to calculate the equity funds needed for investment according to a certain target capital structure when the enterprise has good investment opportunities, and first retain them from the after-tax profits of that year, and then distribute the residual profits as dividends. That is to say, when an enterprise has the investment opportunity to get rich profits, and the expected rate of return on investment is higher than the cost of capital of retained profits, this dividend policy will become a rational choice for enterprises. The reason is simple: this part of cash flow used by enterprises for reinvestment is part of after-tax profits and belongs to endogenous financing. It does not need to pay interest and dividends, nor does it need to consume financing transaction costs like external financing. Obviously, this dividend policy can reduce the comprehensive capital cost, which is conducive to the optimization of enterprise capital structure and the maximization of enterprise profits. The residual dividend policy follows the principle of economic advantage.
For example, a joint-stock company issued 20 million outstanding shares. In 2004, the after-tax profit of the company after withdrawing the provident fund and public welfare fund was 6 million yuan, of which 2.7 million yuan was used for dividends. In 2005, the after-tax profit was 6.3 million yuan. At the beginning of 2006, the company discussed and decided the dividend distribution amount and decided to adopt the residual dividend distribution policy. It is estimated that an additional investment fund of 5 million yuan will be needed in 2006. At present, the company's target capital structure is equity capital accounting for 60% and debt capital accounting for 40%, and this structure will be maintained in 2006. What is the dividend that can be distributed to investors in 2005?
Under the determined target capital structure, the required equity capital for investment in 2006 is: 500? 60%=300 (ten thousand yuan).
According to the principle of residual dividend policy, when the company has good investment opportunities, the equity funds needed for investment are first retained from the after-tax profits of the current year. In other words, the after-tax profit in 2005 should first leave 3 million yuan of equity funds to meet the investment needs in 2006, and then distribute the rest to shareholders. Then the dividend that can be distributed to shareholders in 2005 is: 630-300=330 (ten thousand yuan).
From the above calculation and analysis, it can be clear that the 5 million yuan needed for the company's investment in 2006 will be supplemented by the profit retention of 3 million yuan, and the remaining 2 million yuan will be raised through long-term loans. If the company distributes all after-tax profits to shareholders, and then issues additional shares and loans according to the capital ratio required by the capital structure, it will increase the company's capital cost, which obviously violates the principle of economic advantage. According to the proportion required by the capital structure and on the premise of meeting the investment needs of equity funds, the company follows the principle of economic advantage and distributes the remaining profits to shareholders as dividends.
Two, in order to maintain the ideal capital structure, dividends distributed to shareholders or investors generally do not use the undistributed profits of previous years.
According to the provisions of the Company Law, the company will use the after-tax profits of this year to make up for the losses of previous years, and after withdrawing the provident fund and public welfare fund, add the undistributed profits of previous years, that is, the profits that can be distributed to shareholders or investors. The meaning of this regulation is that the company can only distribute the after-tax profits of this year to shareholders or investors to make up for the losses of previous years and the profits after withdrawing the provident fund and public welfare fund, or distribute dividends in this year with the undistributed profits of previous years.
For example 1, the dividend that the company can distribute to shareholders in 2005 is 3.3 million yuan, or the undistributed profit in 2004 is added to this 3.3 million yuan as the dividend that can be distributed to shareholders this year, that is, the dividend that can be distributed to shareholders in 2005 is: 330+(600-270) = 6.6 million yuan.
However, in financial practice, companies generally do not distribute dividends with undistributed profits of previous years, but only distribute profits of that year. In other words, the dividend that the company can distribute to shareholders in 2005 is 3.3 million yuan, not 6.6 million yuan in general. Because pursuing the residual dividend policy means that the company will only use the remaining profits to pay dividends. The fundamental reason for this is to maintain an ideal capital structure and minimize the weighted average cost of capital. The target capital structure in the title means that the capital structure formed at a specific time after profit distribution meets the established goals. If the company uses the previously undistributed profits to pay dividends this year, the stock of equity funds will decrease. If the equity funds cannot be replenished by other means in time, the capital structure will be destroyed, resulting in an increase in the weighted average cost, which is not conducive to improving the company's value (stock price); Even if the company can supplement the allocated equity funds by issuing stocks in time to maintain the ideal capital structure, it will also lead to the increase of the weighted average cost of capital, which is not in line with the principles of economics. Therefore, the company generally does not use the undistributed profits of previous years for distribution, but distributes the remaining part of this year's profits, namely 3.3 million yuan, to shareholders. Of course, the law does not prohibit companies from distributing dividends exceeding 3.3 million yuan.
Similarly, in financial practice, the dividend per share should also be calculated according to the dividends that can be distributed to shareholders in that year, that is, the dividend per share of the company in 2005 is:
330/200=0. 165 (yuan/share), and the accumulated 6.6 million yuan cannot be used as the calculation basis.
Three, the provisions of the law to withdraw the provident fund and public welfare fund is part of the equity funds needed for enterprises to invest and invest.
The required funds can be directly retained from the after-tax profits of the current year.
According to the company law, the company must withdraw at least 15% of the provident fund and public welfare fund as the provident fund. So the company has to withdraw at least 630? 65,438+05% = 945,000 yuan is retained as profit.
However, in the first example, when determining the dividend amount to be distributed to shareholders, 15% of the common reserve fund and public welfare fund was not set aside according to the requirements of the profit distribution order, but the rest of the after-tax profits in 2005, directly deducting the retained funds needed for investment, was distributed to shareholders as dividends. Because:
(1) If the company withdraws the provident fund and public welfare fund according to law, it will meet the remaining dividends.
If the investment needs equity funds under the distribution policy, the dividend that the company can distribute to shareholders should be 630-94.5-300 = 2.355 million yuan, which actually limits the dividend distribution of the company, increases the profit retention of the company and destroys the target capital structure of the company.
(2) 945,000 yuan required by law belongs to retained earnings and can also be used for a long time. Under the residual dividend distribution policy, the extracted provident fund and public welfare fund can and should be used to meet the needs of the company's target capital structure, which is part of the 3 million yuan equity fund needed for investment.
(3) Withdrawing 65,438+05% of the provident fund and public welfare fund according to law is actually the company's profit this year? Keep it? Limit the amount, not the dividend distribution.
Therefore, under the residual dividend distribution policy, after deducting the equity funds required for investment, the company can directly distribute the residual profits to shareholders or investors with the after-tax profits of the current year, without drawing the provident fund and public welfare fund according to the requirements of the profit distribution order.
Four, the residual dividend distribution policy is only applicable to the situation that the enterprise still has a surplus after the after-tax profit of the current year makes up for the losses of the previous year.
Under the residual dividend distribution policy, the equity funds needed for investment are retained from the after-tax profits of the current year. If there is no surplus or loss after the after-tax profit of the current year makes up for the loss of the previous year, it will be impossible to meet the needs of investment, let alone distribute the remaining profits to shareholders or investors. In this case, it is not suitable to adopt the residual dividend distribution policy. As for how to meet the requirements of enterprise's target capital structure, other financing methods besides retained earnings can be adopted. If we don't make up for the losses of previous years, but use the after-tax profits of that year directly to meet the investment needs and distribute them to shareholders or investors, the enterprise will violate the provisions of the law and affect its image, thus affecting its financing ability.
For example, a company's undistributed profit at the beginning of 2005 was-190,000 yuan, and this year's after-tax profit was190,000 yuan, and the withdrawal ratio of provident fund and public welfare fund was 15%. It is estimated that new investment funds are needed in 2006, and the asset-liability ratio before distribution is 50%, which will be maintained in 2006.
The company uses this year's after-tax profit to make up for the previous year's losses, and the balance is zero. If the company follows the residual dividend distribution policy, the after-tax profit of 654,380,900 yuan this year will first meet the target capital structure of 36 million yuan. 50% =180,000 yuan equity fund, and the remaining1900-1800 =100,000 yuan is distributed to investors, which is not allowed by law. The profits of100,000 yuan illegally distributed must be returned to the company.
After making up the losses in previous years, the company's net profit this year is zero, so it can't make subsequent distribution, that is, it can't draw surplus reserve fund, public welfare fund and any surplus reserve fund according to the after-tax profit of this year, nor can it distribute dividends or profits to shareholders, so the company can only raise equity funds needed for investment through other financing channels. When the after-tax profit of the current year makes up for the loss of the previous year, there is no surplus or loss, so it is not suitable to adopt the residual dividend distribution policy.
Although the after-tax profit realized by the company in that year is only the book figure, the accumulated funds of the enterprise can be used for adjustment.
In all financing methods, except the funds raised by direct investment, the funds raised by other financing methods are all monetary funds. Under the policy of residual dividend distribution, the first way to raise funds is to retain income. Obviously, the funds raised in this way are monetary funds. Moreover, we know that the after-tax profits realized by enterprises in that year are only book figures, and some profits may be unrecovered accounts. This view holds that this cannot question the policy of residual dividend distribution, because:
(1) The funds accumulated by enterprises do not need to be earmarked according to the time when profits are realized, but can be used for adjustment. The accumulated undistributed profits of previous years can be adjusted to meet the investment needs of this year.
(2) The capital required for enterprise investment is only a forecast figure, not an actual figure.
(3) Many theories in financial management are based on certain assumptions, and the residual dividend distribution policy can also assume that the after-tax profits realized by enterprises in that year are all monetary funds.
In short, the residual dividend distribution policy, seemingly simple, actually contains profound content. If you don't understand it carefully and deeply, you will have a vague understanding, which will affect its role in actual operation. Through the above analysis, we can deepen our understanding of it and make better use of it in practical operation. For enterprises, we can make better use of the residual dividend policy, realize the ideal capital structure, minimize the comprehensive capital cost of enterprises, meet the needs of enterprise development, and then satisfy the investment psychology of shareholders or investors who pay attention to the future development of enterprises while gaining short-term benefits, so as to achieve * * *.