Question

Question 1

A-Select a publicly traded company, and describe its current distribution policy. (Pick any company you'd like, but not IBM)

B-Describe the procedures the company followed when it made the last distribution through dividend payments or through a stock repurchase.

C- Analyze how the last distribution impacted the company's intrinsic stock price per share.

D- Evaluate the company's current distribution policy, i.e. discuss the advantages and disadvantages of the company's current distribution policy.

Answer 1

A- First of all i would like to select an indian company for this question. I select State Bank of India.

State bank of India(SBI Bank) started its operation in the year 1806 in Kolkatta. Soon, it was re-named Bank of Bengal in 1809 after it acquired its charter. It was the very first joint stock bank of India. Now, it is one of the biggest banks in India.

Current Distribution Policy

• Statutory and Regulatory Compliance: The company shall declare dividend only after ensuring compliance with Companies Act, 2013, Insurance Act, 1983.as amended by Insurance Laws Act, 2015. There is no explicit regulatory upper limit on dividend distribution ratio for insurance companies provided. The decision regarding dividend shall be taken at the Board Meeting. The final dividend shall be given only after approval at Annual General Meeting.
• Last Payout was ban by RBI- the regulatory body of india  to conserve the capital , due to covid pandemic which shook the economy and there were no adverse effect foreseen.
• Intrinsic Stock : It is the value of company' stock, dividend etc. determined through analysis. As we are undergoing this Covid crisis around the globle price of share fell down by 3.72 % . As of now, it is not considered as a big negative effect due to the crisis in which we cannot help out.
• Advantages of distribution policy SBI:

a) Reserve for profits: As SBI maintains certain reserve apart from profit earned , this reserve is utilized the following year to pay out which is a benefit even if uncertainity or risks arises .

b) Solvency margins : Even the practise of this reserving part of profit helps in maintaing solvency margins.

• Disadvantages of distribution policy SBI:

a) Inadequacy of profits :As mentioned above , the dividend is paid from the reserved profits but there arises any inadequacy of profits, then the payment of dividend cannot be expected.