Definition: The Fixed Proportion Production Function, also known as a Leontief Production Function implies that fixed factors of production such as land, labor, raw materials are used to produce a fixed quantity of an output and these production factors cannot be substituted for the other factors. In other words, fixed quantity of inputs is used to produce the fixed quantity … [Read more...] about Fixed Proportion Production Function
Production Function
Definition: The Production Function shows the relationship between the quantity of output and the different quantities of inputs used in the production process. In other words, it means, the total output produced from the chosen quantity of various inputs. Generally, production is the transformation of raw material into the finished goods. These raw materials are classified … [Read more...] about Production Function
Stock Split
Definition: A Stock Split is a method of increasing the number of outstanding shares with a proportionate reduction in its face value. With a split only the price per share reduces, the market capitalization i.e. market value of the outstanding shares and the proportionate ownership interest of the existing shareholders do not change. The stock split is generally done when … [Read more...] about Stock Split
Types of Dividend
Definition: The Dividends are the proportion of revenues paid to the shareholders. The amount to be distributed among the shareholders depends on the earnings of the firm and is decided by the board of directors. Types of Dividend Cash Dividend: It is one of the most common types of dividend paid in cash. The shareholders announce the amount to be disbursed among the … [Read more...] about Types of Dividend
Gordon’s Model
Definition: The Gordon's Model, given by Myron Gordon, also supports the doctrine that dividends are relevant to the share prices of a firm. Here the Dividend Capitalization Model is used to study the effects of dividend policy on a stock price of the firm. Gordon's Model assumes that the investors are risk averse i.e. not willing to take risks and prefers certain returns to … [Read more...] about Gordon’s Model
Walter’s Model
Definition: According to the Walter's Model, given by prof. James E. Walter, the dividends are relevant and have a bearing on the firm’s share prices. Also, the investment policy cannot be separated from the dividend policy since both are interlinked. Walter's Model shows the clear relationship between the return on investments or internal rate of return (r) and the cost of … [Read more...] about Walter’s Model
Proof of Miller and Modigliani Hypothesis
Definition: Miller and Modigliani Hypothesis or MM Approach supports the “dividend irrelevance theory”, stating that the dividends are irrelevant and has no effect on the firm’s share value. Also, it is believed that it is the investment policy that increases the value of the shares and hence should be given more importance than the payouts to the shareholders. To justify … [Read more...] about Proof of Miller and Modigliani Hypothesis
Miller and Modigliani theory on Dividend Policy
Definition: According to Miller and Modigliani Hypothesis or MM Approach, dividend policy has no effect on the price of the shares of the firm and believes that it is the investment policy that increases the firm’s share value. The investors are satisfied with the firm’s retained earnings as long as the returns are more than the equity capitalization rate “Ke”. What is an … [Read more...] about Miller and Modigliani theory on Dividend Policy
Dividend Policy
Definition: The Dividend Policy is a financial decision that refers to the proportion of the firm’s earnings to be paid out to the shareholders. Here, a firm decides on the portion of revenue that is to be distributed to the shareholders as dividends or to be ploughed back into the firm. The amount of earnings to be retained back within the firm depends upon the availability … [Read more...] about Dividend Policy
Corporate Restructuring
Definition: The Corporate Restructuring is the process of making changes in the composition of a firm’s one or more business portfolios in order to have a more profitable enterprise. Simply, reorganizing the structure of the organization to fetch more profits from its operations or is best suited to the present situation. The Corporate Restructuring takes place in two … [Read more...] about Corporate Restructuring