Ploughing back of profits

Abstract

Like other stakeholders, shareholders will also anticipate a fair return on their investment in the shares of the company of course in the form of dividend in majority of the cases. Though, the payment of dividend on equity shares is not mandatory, but the companies will pay the dividend during the years of profits to their shareholders. The cash payment of dividend may affect the liquidity position of the companies. Hence, the companies will try to pay dividend in the form of issue of bonus shares by capitalizing the profits or by ploughing back of past profits. The purpose of writing this article is to elaborate on how the bonus issue will be served as an effective tool to manage liquid sources of a company.