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Dividend or DPS

ACCOUNTANT (Student) (559 Points)

13 October 2020

Whether dividend of a share is paid as a percentage of PAID UP SHARE CAPITAL or CALLED OR NOMINAL VALUE OF SHARE CAPITAL., please clarify

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14 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 13 October 2020

Do you want to know about dividend decisions? Please refer to dividend policy

If your talking about DPS? Here, no of shares can be used for calculations.

Called up capital is while issuing, and, nominal value of share capital could also be fully paid up capital when issued at par value & market cap (fair value of share capital/market holding)

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 13 October 2020

Oops sorry, DPS FORMULA= Dividends paid/weighted average number of shares.

which means total shares issued, and fully paid up without their value. Eg if you issued 10,000 shares, use that in the formula.

sabyasachi mukherjee (27642 Points)
Replied 13 October 2020

There is no abbreviation as dps.
So I want assure u that there are several accounting ratios which measure dividend yeild.
pls specify.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 13 October 2020

DPS is the number of declared dividends issued by a company for every ordinary share outstanding. It is the number of dividends each shareholder of a company receives on a per-share basis. This is expected or given out number only, this is used in dividend decisions to calculate if dividends can be paid his year or not-eg Walter mOdell. It has a relationship with share price and dividend payout ratio.

sabyasachi mukherjee (27642 Points)
Replied 13 October 2020

THERE ARE two types of dividends declared by a company one interm another final.

It may be so a proposed dividend declared may not be equal to final dividend.

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 13 October 2020

Yes. What ever dividend policy a company follows irrespective of dividend relevance and irrelevance, the relative payout is based on the decision and what is it? SW returns or add value to the firm. So, the policy maker can use only the declared or final dividend for the payout. Interim and final, both are declared and issued.

ACCOUNTANT (Student) (559 Points)
Replied 13 October 2020

My doubt is regarding calculation of Value per share which is =dps/cost of equity. In the book it was given Value per share = dividend rate * Paid up share capital/cost of equity. and my doubt is whether it is paid up share capital or nominal share capital.... please clarify

ACCOUNTANT (Student) (559 Points)
Replied 13 October 2020

BY the way what is the "SW" you mentioned in your reply yasaswi gomes...

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 14 October 2020

If you have both of them in the question, then you need to understand nominal value and book value are technically the same when issued at par. They get that value when share money is collected from the issue. After that, the company calculates the share price changes and calculates market cap.

Here, the formulas are not available anywhere. The SW is my mistake, I meant shareholders returns.

please check your formulas. What model are you using to calculate the price of share, Gordon, Walter, traditional approach or MM model? Because I can’t recognise the above formulas.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 14 October 2020

Give me the chapter name and subheading of this problem we can do something about it. Usually paid up capital aka share proceeds received is used.

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ACCOUNTANT (Student) (559 Points)
Replied 14 October 2020

my doubt is in Valuation chapter of CA Final and it is simple., whether dividend is paid on Paid up capital or nominal value per share., i

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 14 October 2020

I couldn’t find it in business valuations and maybe your resources are different. Dividends like rights or bonus issue are given to shareholders like two dividends for one share. I have mentioned it above. Dividends per share is calculated using only the number of shares. If you have paid up share capital say 10,000 @ 10₹ per share, then 10000/10=1000 share were paid up. Use that number in the calculation. Last year company paid 20000, so dps= 20000/1000= 20₹ dividends paid per share. Sorry this is all I could get as DVM also doesn’t have the formula you mentioned.

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ACCOUNTANT (Student) (559 Points)
Replied 14 October 2020

Originally posted by : yasaswi gomes
	I couldn’t find it in business valuations and maybe your resources are different. Dividends like rights or bonus issue are given to shareholders like two dividends for one share. I have mentioned it above. Dividends per share is calculated using only the number of shares. If you have paid up share capital say 10,000 @ 10₹ per share, then 10000/10=1000 share were paid up. Use that number in the calculation. Last year company paid 20000, so dps= 20000/1000= 20₹ dividends paid per share. Sorry this is all I could get as DVM also doesn’t have the formula you mentioned.

THANK YOU....Dividend Capitalization Method (DCM) is calculated as under:
Value per Share = Expected DPS ÷ Ke
Or Value per Share = Dividend Rate ÷ Ke x Paid up Value per Share

this is what given., anyways i got reasonably clarified., thanks for the explaination.

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 14 October 2020

Nice of you to let me know this. Looks like Gordon’s dividend capitalisation model which includes growth rate is the only thing I have in my resources. could not confirm it because this DCM is not published in my resources.