What Is a Residual Dividend Policy?

The residual dividend policy is when the company has a good investment opportunity, and calculates the difference between the required equity capital and the existing equity capital according to the target capital structure. . The residual dividend policy is conducive to maintaining the target capital structure of the enterprise.

Residual Dividend Policy

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Residual dividend policy is a good

Residual dividend policy means that the net income obtained by the company's production and operation should first meet the company's capital requirements. If there is surplus, dividends will be distributed; if there is no surplus, dividends will not be distributed.

The theoretical basis of the residual dividend policy is

1.Keep ideal

The decision-making steps for the remaining dividend policy are as follows:

(1) According to the company's

The net profit after tax of Hangtong Co., Ltd. in 2001 was 80 million yuan. Since the company is still in its infancy, the market prospect of the product is promising and its industrial advantages are obvious. The determined target capital structure is: debt capital is 70% and shareholder equity capital is 30%. If the company has a good investment project in 2002 and needs to invest 60 million yuan, and the company adopts a residual dividend policy, how should the company finance and distribute dividends.

First, determine the shareholder equity capital that needs to be raised according to the target capital structure:

6000 × 30% = 1800 (ten thousand yuan)

Second, determine the total dividends to be distributed as:

80001800 = 6200 (ten thousand yuan)

Therefore, Hangtong Co., Ltd. should also raise debt funds:

60001800 = 4200 (ten thousand yuan)