# Essays on Dividend Policy of Coca Cola Company Case Study

The paper 'Dividend Policy of Coca Cola Company" is a good example of a finance and accounting case study. Dividend policy involves making a decision on whether to pay cash dividends at present or paying them at a later date after they have accumulated. Dividend policy is usually determined by the dividend payout ratio (Universalteacher4u. com, 2011). This discussion aims at analyzing the dividend policy employed by Coca Cola Amatil Limited Company. The company opts to pay its dividends at an optimized rate as discussed later in the study. Analysis of recent firm’ s dividends and earnings   Year EPS % DPS% Payout ratio         2004 39 28 0.717949         2005 43.3 31.5 0.727483         2006 43.2 32.5 0.752315         2007 48.8 35.5 0.727459         2008 54.9 39 0.710383         2009 60.5 43.5 0.719008         2010 67.3 48.5 0.720654       Graph 1             Graph 2     The history of the firm’ s dividends indicates that there is a target payout ratio since the company has a consistent payout ratio throughout the years. Dividend payout trend using a comparison of DPS and EPS trends Graph 3 The graph above shows how the dividend per share ratio relates to the earnings per share trend. The dividend payout ratio is calculated as DPS/EPS In this case, the dividend payout ratio for the year 2004 would be 28/39 which equals to 0.717949.

This indicates that the rate of dividend payout is above 70%.

The average dividend payout ratio for the years 2004 to 2010 is 0.725036. The dividend payout ratios are relative to the company’ s earnings at the end of financial periods. The recorded profits for the years 2004 to 2010 are 280.3, 320.5, 282.5, 310.7, 385.6, 449, 497.3 and 591.8 respectively. This shows that there has been a positive trend in profitability. The dividend payout ratio has also been increasing with respect to an increase in returns. The company has a constant dividend payout policy with a target policy of generating a dividend ratio of an estimated 72.05% rate per annum. Effects of Franking credits on the dividend policy Franking credits from the year 2007 to 2011 have been decreasing in respect to the progress in years.

Franking dividends of the company during the years have ranged from 150.1 to 91.1. Franking credits at the beginning of the year are 150.7, 108.2, 90.4, 84.4, and 91.1 for the years between 2007 and 2011. This shows that the franking credits have been decreasing in rate with progress in years. The decrease is based on the policy of payment of tax at and growth of the company at an upward trend.

The company has a dividend policy that ensures that franking credits are at a reducing trend. The franking credits from the income tax have been fluctuating. For instance, a range from 47.8 to 15.8 between the year 2007 and 2008 is observed. The decrease could have been due to the change in dividend imputation where the company could be paying less income tax of dividends available. The amounts of other franking credit from income tax are 65.9, 71.8 and 20.1for the years 2009 to 2011 respectively.

The fluctuations in the franking credits for the income tax vary due to the different payment strategies by the management while paying for its dividends. The total franking credits are also influenced by the amount of franking credit at the beginning of the year and franking credits from income tax (Little, 2012). The total franking credits observed from the year 2007 to 2011 are 198.5, 124.1, 156.3, 156.2 and 111.2 respectively. The variations on franking credits are due to differences caused by the income tax franking credits.

The range would have been decreasing constantly if it was only based on the franking credits at the beginning of the year.

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