Sample Thesis Paper
The Dividend Coverage Ratio is calculated by dividing the total dividend by the total cash flow from operating activities. This ratio is a reflection of how well the company’s cash flow from its operating activities is used to pay dividend to share holders. Larger companies pay higher dividends and companies that are expanding retain their cash and pay out little or no dividends. A high payout ratio also means that as the dividends are being paid through cash, the cash position of the company is favourable (Bragg 2003).
However, the use of ratio depends upon various approached to define dividend payments that implies that the company’s ability to pay its current or future dividends is analyzed. If a company has a policy of relatively constant dividend payout it can use the cash paid to common shareholders as declared in the cash flow statement however if company involves in regularly increasing dividends then total dividends announced throughout the year should be used as the basis of estimation (Mills et al. 2006).