What actions could management take to improve the company’s ability to pay out dividends? List, at...

What actions could management take to improve the company’s ability to pay out dividends? List, at least, 3 actions.

Expert Solution

Management should take following actions to improve its ability to payout dividends

· Improve the profitablity of the firm. A profitability of the firm is measured through net profit margin. Higher the net profit margin the shareholders will have higher Earnings per share. When earnings per share is higher dividend can be declared to shareholders. Hence a firm has to improve its Margin on sales

· Improve the cash flow from operating activities. The operating activities are the core activities of the firm which generate cash flow. The core operating activities consist of sales, purchase, operating expenses and payment of interest and income tax. A higher cash flow from operating activities increases the firm’s ability to pay out more dividends

· Improve the free cash flows (FCFs). Free cash flows are the cash flows available for repayment of loan and payment of dividend to shareholders. Free cash flows are calculated by deducting capital expenditure from cash flow from operating activities.

ekkarill92 answered 1 year ago

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