An overview of Dividend Policy of

FU-WANG FOODS LTD.

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 Prepared for
Professor Dr. Tanbir Ahmed Chowdhury
Faculty of Business & Economics

Name ID
Nasrin Akther 2016-3-10-020

Md. Mosharof Hossain 2016-3-10-046

Adiya Mirdha 2016-1-10-138

Rahila Khatun Sinthi 2016-1-10-321

Md. Al Helal Hossain 2016-3-10-032

Seyeda Shahanaz 2016-3-10-002

Course Title: Managerial Finance

Course Code: FIN 435
Section: 02
Department of Business Administration
East West University
July 22, 2019

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 Letter of Transmittal
27th November2018
Professor Dr. Tanbir Ahmed Chowdhury
Dean, Faculty of Business & Economics

East West University

Subject: Submission of Term paper

Dear Sir,

It is indeed a great pleasure to have the opportunity to submit our term paper on “AN
OVERVIEW OF DIVIDEND POLICY OF FU WANG FOODS LIMITED” and this report
was prepared to have a qualitative and deep knowledge about the dividend mechanisms of
this company.

The objective of this report was to appraise the dividend policy of Fu-Wang foods limited.
We have collected all the data needed for this term paper from secondary sources. We have
identified the theory of dividend policy which is followed by this company and also have
analyzed the company’s dividend policy based on some particular aspects like Net income,
EPS, Dividend pay-out ratio, Capital structure, Stock dividend, Right shares etc. We hope
that, this report will provide enough knowledge about the dividend policy of Fu-Wang foods
limited and also will give an overall idea on dividend mechanisms.

Thank you for authorizing this research and we are grateful to you for all the support and
encouragement in completing this report.

Sincerely,
Nasrin Akther 2016-3-10-020

Md. Mosharof Hossain 2016-3-10-046

Adiya Mirdha 2016-1-10-138

Rahila Khatun Sinthi 2016-1-10-321

Md. Al Helal Hossain 2016-3-10-032

Seyeda Shahanaz 2016-3-10-002

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 Table of Content
Letter of Transmittal…………………………………………………….3
Table of Content……………………………………………………………………..4

Executive Summary…………………………………………………..………5
Chapter-1: Introduction…………………….………………………………..6-11
1.1 Overview of dividend policy……………………………….6-10
1.2 Objectives of the study ..………………..…………….…...10

1.3 Scope & Methodology of the study .………..………………….11

1.4 Limitations of the study………………………………………..11

Chapter-2: Appraisal of dividend policy of Fu-Wang Foods Ltd. …12-28

2.1 overview of Fu-Wang Foods Ltd………...…………….. 12
2.2 Capital Structure …………………….………...……..... 13
2.3Income …………………………………………..………. 15
2.4 Expenditure ………………………………...……..……. 16
2.5 Net Income……………………………………………… 18
2.6 Retained Earnings ………………………………...…… 19
2.7 Earning Per Share ……………………………………... 21
2.8Dividend Payout Ratio……………………………………… 23
2.9 Cash Dividend …………………………………...……… 24
2.10 Stock Dividend…………………………………………. 26
2.11 Market price of Fu Wang Foods

Ltd.’s Share (52 weeks price Range)……………………28

Chapter-3: Findings & Conclusion …………………………………...29-30

3.1 Findings ............................................................................................................. 26
3.2 Conclusion ......................................................................................................... 27
Reference ..................................................................................................................... 28

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Executive Summary

In light of the course requirement, a report has been prepared about dividend policy of Fu-
Wang Foods limited. Dividend policy is the set of guidelines a company uses to decide how
much of its earnings it will pay out to shareholders. When a company earns profits from
operations, management can do one of two things with those profits. It can choose to retain
them - essentially reinvesting them into the company with the hope of creating more profits
and thus further stock appreciation. The alternative is to distribute a portion of the profits to
shareholders in the form of dividends.

This report highlights different approaches of dividend policy and specifically the dividend
policy of “Fu-Wang foods limited”. We have provided detailed information about the
dividend policy of Fu-Wang foods limited and we also have covered all the related factors
with it and in addition to that we have tried to incorporate the theories that we have learned
with the practices.

The company follows dividend relevance theory mainly. High amount of dividend is
distributed among the investors each year. Mainly cash dividend is paid and stock
dividend is paid rarely.

A clear information regarding EPS, Net income, Capital structure etc. has been given in this
report.

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 Chapter-01: Introduction

1.1 Overview of dividend policy

If a company makes a profit, they are subject to decide on what to do with those profits. They
may continue to retain the profits within the company for prospects, or they could payout the
profits to the owners of the firm in the form of dividends. Once the company decides on
whether to pay dividends, they may establish a somewhat permanent dividend policy, which
may in tum impact on investors and perceptions of the company in the financial markets.
What they decide depends about the company now and in the future. It also depends on the
preferences of investors and potential investors.

Dividends

• Dividends are payments made to stockholders from a firm's earnings, whether those
earnings were generated in the current period or in previous periods. Dividends may
affect capital structure

• Retaining earnings increases common equity relative to debt.

• Financing with retained earnings is cheaper than issuing new common equity.
Whatever the Dividend Policy, optimal dividend or stable dividend, there must be a
consistent dividend policy which has impact on investors and perceptions of the
company in the financial markets. It also has impact on the preferences of investors
and potential investors. There are various theories that try to explain the relationship
of a firm's dividend policy and common stock value.

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Dividend Policy

Dividend theories are developed to help firms with their dividend policies. Dividend theory
has 2 types-

• Dividend irrelevance theory: Dividend irrelevance theory put forth by Metorn H.

Millar & Franco Modigliani (M&M) that in a perfect world, the value of a firm is
unaffected by the distribution of dividends and is determined solely by the earning
power and risk of its assets and that the manner in which it splits its earnings stream
between dividends and internally retained funds does not affect this value. There is no
relationship between dividend and share price. Share price mostly depends on basic
earning power and risk of corporation. In this theory, shareholders are risk takers and
focused on long term investment. The informational content and Clientele effect are
considered in this theory.

• Dividend relevance theory: The theory Dividend relevance advanced by Gordon and

Lintner states that there is a direct relationship between a firm’s dividend policy and
its market value. Fundamentals to this proposition are their bird-in-the-hand argument,
which suggests that investors see current dividends as less risky than future dividends
or capital gains. That means investors are risk averse & attach less risk to current as
opposite to future dividends or capital gains. Cash Dividend reduces investor
uncertainty causing investors to discount the firm’s earnings at a lower rate and it
places a higher value on the firm’s stock. If dividends are increased, investor
uncertainty will decrease, lowering the required return and increasing the value of the
firm’s stock. Empirical studies fail to provide conclusive evidence in support of
dividend relevance argument. However, financial managers & stockholders believe
that dividends are relevant.

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Types of dividend policy:

Dividend policy means that the companies are regarding the amount it would pay to their
shareholders as dividend. With profit making comes the question of utilizing the profit
gainfully. The companies have two options with them:

They can retain these profits within the company

They can pay these profits in the form of dividends to their shareholders

The dividend policy will be adopting by the company is based on these two options. On that,
a permanent dividend policy can be put into place. These policies shape the attitude of the
investors and the financial market in general towards the concerned company. The policies
are decided according to the current and future financial positions of the company. The
preference and orientation of the investors are also considered.

The dividend policy is acting as a signal for investors for value the future earning possibilities
as expected by the management of the company. The dividend policies are directed towards
attracting investors to their company. This is termed as the clientele effect. The firms that
hold back free cash flows are lesser in value than those firms, which allow free cash flows
and pay dividends from them. There are quite a few breaks to companies paying dividends to
their shareholders. Some of these constraints are as follows:

Consideration of taxes Consideration of returns Contractual constraints

Cash flow constraints Legal constraints

The dividend policy of a company has a relation with its common stock value. The Dividend
Irrelevance Theory propounds that the dividend policy of a firm has no direct bearing on the
cost of its capital or its value. The Dividend Relevance Theory, on the other hand,
expostulates that the value of the firm is affected by its dividend policy. The Optimal
Dividend Policy helps increasing the value of the firm to the maximum. The amount of
dividend to be paid is dependent on these policies:

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I. Constant payout ratio dividend policy: A certain percentage of net income may be
distributed as dividend. If company earns net loss, no dividend will be paid in that
year. Uncertainly dividend is increasing.

II.Regular dividend policy: A certain percentage of dividend will be paid per year. If
corporation earns net loss, dividend may be paid from retained earnings. Stable
dividend is possible to pay.

III. Low, regular and extra dividend: The company prefers to pay low dividend
regularly. Then, the company pays additional dividend at a regular interval by
reviewing the retained earnings. Shareholders gets continuous dividend.

Factors affecting dividend policy

There are some factors affecting the dividend policies of a firm. A firm needs to consider
these factors while making a dividend policy. These factors are described briefly below-

  Legal constraints: The Legal Constraints denotes an earnings requirement

limiting the amount of dividends to the sum of the firm’s most present & past retained
earnings is sometimes imposed. However, the firm is not prohibited from paying more
in dividends than its current earnings. Maximum dividend = Retained earnings + Net
income of the year

Internal constraints: Dividend depends on available cash rather than the maximum
dividend returning + net income. Dividend is affected by the amount of excess cash
available. 

Contractual constraints: Dividend may be constrained by long term loans. Creditors may
impose restrictions on new debt, dividends and corporate salaries to protect the firm from
insolvency. Contractual Constraints considers the firm’s ability to pay cash dividends are
constrained by certain restrictive provisions in a loan agreement. These Constraints prohibit
the payment of cash dividends. Constraints on dividends help to protect creditors from losses
due to insolvency on the part of the firm.

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Growth Prospects: Growth Prospect focuses on the firm’s financial requirements are
directly related to the degree of assets expansion that is anticipated.

Owner Considerations: Owner Considerations includes tax status of a firm’s owners,

owner’s investment opportunities the potential dilution of ownership and prospects of firm.
Wealth of the firm’s owners reflected by the market price of share and market price of share
influenced by the dividend policy are stock holders prefer fixed or increasing level of
dividends as opposed to a fluctuating pattern of dividends.

1.2 Objective of the study

Our purpose for preparing this report -

 Appraise the dividend policy of Fu-Wang foods Ltd.

 To present principal activity of Fu-Wang foods Ltd.

 With capital structure we have also studied the net income of last 5 years of company.

 Dividend policy of Fu-Wang foods Ltd.

 To analyze which theory Fu Wang foods limited follows.

 To analyze the relationship between Fu Wang foods Limited’s dividend policy and its
market values.

 To analyze whether the dividend policy of Fu Wang foods limited is consistent with
the company's wealth maximizing goal or not.

 To present principal activity of Fu Wang foods limited.

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  To present principal activities like how it is expanding its business through expanding
assets.

 To present its capital structure which includes Number of shareholders, Authorized

Capital, Paid-up Capital and Face Value?

 With capital structure we have also studied the net income of last five years of
company.

1.3 Scope of methodology of the study

Our term paper is mainly based on primary and secondary data. We mainly took annual report
from Lanka Bangla by which we have finished most of our work on this report. As we did our
report on Fu Wang foods limited so we have also collected information from the internet and
from the Wikipedia about the history of Fu Wang foods limited. We have done the study of
dividend policy of Fu Wang foods limited for the last 5 years. We have finished the ratio
growth percentage from the last annual report.

1.4 Limitation of the study

To make an accurate study on dividend appraisal policy we were faced with some problems
and barriers that has limited our study. Those are:

• Lack of corporation from the data source.

• Because of confidentiality purpose all information was not available in the company
website.

• Due to time constraint it was very difficult to learn all the activities of the regarding
organization properly.

• Because of confidentiality purpose, all information was not available in the company
website some of the information were retain by the company.

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 Chapter 2:
Appraisal of dividend policy of Fu-Wang Foods LTD.

2.1: Overview of Fu-Wang foods LTD: Fu-Wang Foods Ltd is a public ltd companies
incorporated with joint stock companies and Firm Bangladesh also publicly listed with Dhaka
Stock Exchange Ltd And Chittagong Stock Exchange Ltd.

Fu Wang Foods Limited commenced its commercial production in August 1997 and achieved
ISO-9002 certification on 04th November 1998.

Since inception Fu Wang Foods Limited introduces different pack food items like BREAD,
BISCUIT, CAKE, TOAST, WAFER BAR, CHOCOLATE, INSTANT NOODLES,
DRINKING WATER, CARBONATED DRINKS and ENERGY DRINKS etc. and was
appreciated throughout the globe.

In the emergence of 21st century, consumer consciousnesses are ameliorated day by day.
Now their product selection is in the term of quality rather than quantity & price. They are
always looking forward to safer & security of their regular product. Considering above
FuWang engages in the field of food industry since August 1997. The Management of Fu-
Wang Food's is always followed QSP (Quality, Services and Price) for their each & every
product.

Fu-Wang Foods is much closed to the taste and food habit of generations. Accordingly we are
sincere to research and development of products from state of art laboratory. Every developed
product from Fu-Wang foods is well accepted from each every valued customers group.

Due to much acceptance of Fu-Wang Foods products many of the food producers taking the
scope of duplicating our products, packing shapes etc. Thank our valued customers for their
valued supports to choose the right product from the crowd of products in shops/market.

Remember nationwide growth of Fu-Wang Foods network & supply chain only due to our
customers. Presently we are having 500 dealers, eight numbers of branches & residential
offices to serve you. More than 200 products option to your wide variety choice. 24 hour
supervision of foreign technician for producing quality, imported Taiwan, Italian machinery,
good quality raw materials confirming your satisfaction. Very near future we are stepping in
for beverage products. Hope all of you will like it.

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2.2 Capital structure

Capital structure illustrates the proportion of the debt and equity in a firm’s capital. It is a
relative proportion of common stock, preferred stock and debt. It is normally expressed as
hundred times of the ratio of market value of each component of capital to the sum of the
market values of all components of capital.
In financial management, capital structure theory refers to a systematic approach to financing
business activities through a combination of equities and liabilities. According to the
traditional theory of capital structure, a company should focus on minimizing the cost of
capital and maximizing the value of marketable asset. Modigliani and Miller proposed that
capital structure is irrelevant when there are no taxes and that 100% debt is the optimal
capital structure when there are taxes. However, recent studies suggest that cost of debt falls
with increase in the proportion of debt but it leads to an offsetting increase in cost of equity
(due to higher distress costs associated with higher debt levels). The optimal structure is
where the weighted average cost of capital is lowest and that is anywhere between 100% debt
and 100% equity.

If market values are not available, the percentages are calculated based on book values.
Capital structure is also expressed by debt to total assets ratio. Percentage of equity and
percentage of debt can also be calculated if we know the financial leverage ratio or debt to
equity ratio of the business.

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Year Total asset Equity Debt Growth rate of Growth rate of
equity (%) debt (%)

2013-2014 1,179,301,123 838,646,413 262,563,329 _ _

2014-2015 1,343,232,984 951,776,836 325,451,590 12% 19%

2015-2016 1,432,203,822 1,038,910,760 386,602,133 8% 16%

2016-2017 1,581,852,767 1,101,636,013 384,102,520 6% -1%

2017-2018 1,681,695,525 1,164,361,266 393,103,750 5% 2%

1,800,000,000

1,600,000,000

1,400,000,000

1,200,000,000
Total asset
1,000,000,000
Equity
800,000,000 Debt
Growth rate of equity (%)
600,000,000
Growth rate of debt (%)
400,000,000

200,000,000

0
2013 2014 2015 2016 2017 2018
-200,000,000

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2.3 Net income

Net income (NI) is indicates toward the total earnings or profit of a company. Net income is
calculated by taking revenues and subtracting the costs of doing business such as
depreciation, interest, taxes and other expenses. It helps company to retained earnings in
order to investing future in a low cost of financing. The net income of Fu-Wang Foods LTD
has been given from the year 2012 to 2016 and the growth rate of net income has been
analyzed also.
Income of Fu-Wang has a decrease in net income from 2012 to 2013. At the year of 2014
the company faces an increase in net income compare with 2013. Again In the year of 2015 &
2016 the net income of the company has decreased compare with 2014.

Year Net Income(MN) Growth Rate (%)

2017-2018 61376089 -69%

2016-2017 61,799,818 -39%

2015-2016 86,159,782 -28%

2014-2015 110,054,185 46%

2013-2014 59,693,789 -

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 120000000

100000000

80000000

60000000
Net Income(MN)
Growth Rate (%)
40000000

20000000

0
2018 2017 2016 2015 2014

-20000000

2.4 Expenditure
This category is divided into two major components: selling (marketing) expenses and
general and administrative (G&A) expenses (or both together, SG&A). Selling expenses
include any expense incurred in an attempt to sell the products. Expenses such as advertising,
salaries of sales personnel, and sales commissions would be included. G&A expenses include
all other expenses; these relate to the general administration activities needed to run the
business for the current year covered by the income statement. Examples of G&A expenses
include rent expense, insurance expense, and other expenses related to the general
administration of the company.
The expenditure of Fu Wang Foods Ltd. is explored-

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Year Expenditure Change Change in %

2013-2014 74,545,345 - -

2014-2015 70,255,742 -4,289,603 -6.11%

2015-2016 69,095,390 -1,160,352 -1.68%

2016-2017 65,496,489 -3,598,901 -5.49%

2017-2018 62,152,801 -3,343,688 -5.11%

Expenditure vs Year
100%

80%

60%
Expenditure

40%

20%

0%

-20%
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
Change in % 0 -6.11% -1.68% -5.49% -5.11%
Change 0 -4,289,603 -1,160,352 -3,598,901 -3,343,688
Expenditure 74,545,345 70,255,742 69,095,390 65,496,489 62,152,801

Fu Wang Foods Ltd. used to expend more during the year 2012-2013. But gradually they
minimized the expenses which was very less in 2014-2015. The highest expenditure was
incurred during 2013-2014. Decreasing in expenditure is a good sign for any types of
company.

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2.5 Net income

Net income (NI) is indicates toward the total earnings or profit of a company. Net income is
calculated by taking revenues and subtracting the costs of doing business such as
depreciation, interest, taxes and other expenses. It helps company to retained earnings in
order to investing future in a low cost of financing.

The analysis regarding net income of Fu Wang Foods Ltd. is given below-

Year Net Income Change Growth Rate (%)

2013-2014 59,693,789 - -

2014-2015 110,054,185 50,360,396 45.76%

2015-2016 86,159,782 -23,894,403 -27.73%

2016-2017 61,799,818 -24,359,964 -39.42%

2017-2018 61,376,089 -423,729.00 -69.00%

120,000,000 110,054,185

100,000,000
86,159,782
80,000,000
59,693,789 61,799,818 61,376,089
60,000,000 50,360,396

40,000,000

20,000,000
0 0 45.76% -27.73% -39.42% -69.00%
0
-423,729.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
-20,000,000
-23,894,403 -24,359,964
-40,000,000
Net Income Change Growth Rate (%)

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The company had positive net profit during 2012-2013. But it turned into negative in the next
operating year. Onward, company hold the position by increasing the growth by 45.76% in
2013-2014. After the good scenario, company has gradually lost the profit phrase and faced
net profit consecutively. It is not at all a good position of the company.

2.6 Retained earnings:

Retained earnings are the cumulative net earnings or profit of a firm after accounting for
dividends and are sometimes referred to as the earnings surplus. Retained earnings are the net
earnings after dividends that are available for reinvestment in the company's core business or
to pay down its debt. It is recorded under shareholders' equity on the balance sheet. The
formula calculates retained earnings by adding net income to or subtracting any net losses
from, beginning retained earnings and subtracting any dividends paid to shareholders.
It helps company to support its financing needs as well as minimizing the cost of financing.
The retained earnings of Fu Wang Foods Limited is given below and the growth rate is also
analyzed:

Year Retained Earnings Change Growth Rate (%)

2013-2014 102,625,070 - -

2014-2015 150,950,715 48,325,645 32.01%

2015-2016 132,387,244 -18,563,471 -14.02%

2016-2017 114,613,611 -17,773,633 -13.43%

2018-2019 87,903,642 -26,709,969 -23.30%

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 160,000,000 150,950,715

132,387,244
140,000,000
114,613,611
120,000,000 102,625,070
100,000,000 87,903,642

80,000,000

60,000,000 48,325,645

40,000,000

20,000,000
0 0 32.01% -14.02% -13.43% -23.30%
0
2013-2014 2014-2015 2015-2016 2016-2017 2018-2019
-20,000,000 -17,773,633 -26,709,969
-18,563,471
-40,000,000

Retained Earnings Change Growth Rate (%)

Here we can see that in 2013-14 and 2014-15 periods company had made profit so they keep
a certain portion of their profit as retained earnings. But in 2015-16 period due to the loss of
the company by 14.02%, retained earnings has drastically decreased because from retained
earnings they have to pay their debt and reinvested in their business. Again 2015-16 they
made a loss and than their previous year which also lead them to reinvest and pay their debt
by using their retained earnings and retained earnings.

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2.7 Earning Per Share

Earnings per share (EPS) are the portion of a company's profit allocated to each outstanding
share ofcommonstock. An Earningsper share serves as an indicator of a company's
profitability. It is common for a company to report EPS that are adjusted for extraordinary
items, potential share dilution.

Year EPS Growth in EPS (%)

2013-2014 0.71 -

2014-2015 1.16 38.79%

2015-2016 0.83 -39.76%

2016-2017 0.56 -48.21%

2017-2018 0.89 37.08%

EPS
EPS Growth in EPS (%)

1.16

0.89
0.83
0.71
0.56
38.79% 37.08%

2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

-39.76%
-48.21%

It shows that from 2012 to 2014, EPS is increasing and 2015 to 2016, EPS is decreasing. It is
fluctuating in this time. EPS decreased significantly in 2014-2015 from 2.81 to 1.06. So, the
growth of EPS was also negative in the years. We can also see that the growth of Earning per
share is decreasing each year, which is not good for both the firm and for the shareholders.

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The real situation of EPS is not at all in good situation. In the period of 2013-2014, company
had less growth in EPS. Though it saw the light in the period of 2014-2015 but they were
unable to hold the position and growth decreased drastically.

2.8 Dividend Payout Ratio

The dividend payout ratio is the amount of dividends paid to stockholders relative to the
amount of total net income of a company. The amount that is not paid out in dividends to
stockholders is held by the company for growth. The amount that is kept by the company is
called retained earnings.

The part of the earnings not paid to investors is left for investment to provide for
futureearnings growth. Investors seeking high current income and limited capital growth
prefer companies with high Dividend payout ratio. However, investors seeking capital growth
may prefer lower payout ratio because capital gains are taxed at a lower rate. High growth
firms in early life generally have low or zero payout ratios. As they mature, they tend to
return more of the earnings back to investors. Here we can see that in 2013 Fu Wang Food
Ltd. company’s dividend payout ratio has .96 since then it gradually increased and decreased
which is not a very sign for investor.

Years Dividend Net Income Change

2013-2014 6,58,30,190 59,693,789 1.10

2014-2015 10,86,19,721 110,054,185 .99

2015-2016 8,32,75,196 86,159,782 .97

2016-2017 9,16,02,715 61,799,818 1.48

2017-2018 82,517,510 61376089 1.34

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2.9 Cash Dividend

A cash dividend is money paid to stockholders, normally out of the corporation's current
earnings or accumulated profits. All dividends must be declared by the board of directors, and
they are taxable as income to the recipients.

Dividend History

Cash Dividend (%) Stock Dividend (%)

2001 10.0 0.0

2002 12.0 0.0

2003 15.0 0.0

2004 12.0 0.0

2005 15.0 0.0

2006 10.0 0.0

2007 5.0 0.0

2008 6.0 0.0

2009 0.0 10.0

2010 0.0 20.0

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2011 0.0 20.0

2012 0.0 12.0

2013 0.0 10.0

2014 0.0 10.0

2015 0.0 15.0

2016 0.0 10.0

2017 0.0 10.0

2018 0.0 10.0

According to the data, it is visible that Fu Wang Foods Ltd used to give cash dividend till

20018. After that they started to distribute stock dividend instead of cash dividend and it is
being continued till the current year.

2.10 Stock dividend

A stock dividend is a dividend payment made in the form of additional shares rather than a
cash payout, also known as a "scrip dividend." Companies may decide to distribute this type
of dividend to shareholders of record if the company's availability of liquid cash is in short
supply (Investopedia, 2017). A corporation might declare a stock dividend instead of a
cashdividendin order to increase the number of shares of stock outstanding, move some of its
retained earningsto paid-in capital and minimize distributing the corporation's cash to its
stockholders (Shaw, 2017). The stock dividend carries certain advantage both to shareholders
and the company:

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 ● One of the advantages to shareholders in the respect of stock dividends is the tax
benefit. The receipt of the stock dividends by the shareholder is not taxable as income.
● If a company has been following a policy of paying a fixed amount of dividend share
and continues it after the declaration of the stock dividend, the total cash dividends of
the shareholders will increase in future. The declaration of the stock dividend may
have a favorable psychological effect on shareholders.
● The declaration of a stock dividend allows the company to declare a dividend without
using up cash (Conservation of cash) that may be needed to finance the profitable
investment opportunities within the company.
● In some situations, even if the company’s intention is not to retain earnings, the stock
dividend is the only means to pay dividends and satisfy the desires of shareholders.
● To increase the trading activity, sometimes the intention of a company in declaring
the stock dividend is to reduce the market price of the share and make it more
attractive to investors.

Years Dividend Dividend (%) Change (%)

2017 1518272 10% 13%

2016 1309919 10% -47%

2015 1925581 15% 31%

2014 1324026 10% 5%

2013 1257522 10% -

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 2500000

2000000

1500000

1000000

500000

0
1 2 3 4 5

Dividend

Chapter 3:
Findings and Conclusion

3.1 Findings:
After completing the analysis on dividend appraisal policy of Fu Wang Ltd., we found that
1) Fu Wang follows the dividend relevance theory. They prefer to give more dividends
in order to satisfy investors.
2) According to informational content, amount of dividends paid does affect the price of
shares to some extent.
3) According to clientele effect, Fu Wang ltd Company is perfect for investment for the
short-term investors.
4) They give low regular and extra dividend to their stockholders.
5) They provided only stock dividend and no cash dividend to increase liquidity and
reduce tax expense.
6) Their amount of equity was much higher comparing to debt in previous years. But in
2015 and 2016 the percentage of debt was more than the equity. But then the
difference has been minimizing. That means, the firm is taking more leverage than
before.

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 7) The growth rate of both net income and earnings per share of the company is on the
decline in the last two years.

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3.2 Conclusion:

At its simplest, a dividend (or economic distribution) reflects the portion of earnings not
reinvested in a business in a given year, but paid out to owners in the form of current returns.
If we think about earnings of a company, there are only three things that can be done with the
earnings of a business: Reinvest the earnings in the business, either in the form of working
capital, plant and equipment, software and computers, and the like, or even excess or surplus
assets; Pay down debt and Pay dividends to owners or repurchase stock (another form of
returns to shareholders). Those are all the choices. Every business will do one or more of
these things with its earnings each year. By analyzing the dividend policy of Fu Wang Food
ltd we found the following things:

● Fu Wang Food ltd follows dividend irrelevance theory.

● This company provides stock dividend more and cash dividend less
● But providing stock dividend are more popular among this company.
● Paying low dividend has made this company’s shares less attractive to the investors.

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Reference:

https://www.dsebd.org/displayCompany.php?name=FUWANGFOODhttp://lankabd.
com/dse/stock-market/FUWANGFOOD/fu-wang-foods-
limited/stockprice?stockId=93http://www.fuwangfoodsltd.com
http://lankabd.com/dse/stock-market/FUWANGFOOD/fu-wang-foods-
limited/companyprofile?companyId=93&goToHomePageParam=true&stockId=93

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