Corporate Finance
Payout Policy
Payout policy allocates cash between reinvestment, debt reduction, liquidity reserves, dividends and share repurchases. The decision depends on investment opportunities and financing resilience.
Course purpose
The decision examined
Accounting profit does not determine distributable cash. A stable policy must account for maintenance investment, working capital, debt service, covenants and the funding required by valuable projects.
Objectives
Learning outcomes
- Construct cash available for payout.
- Compare dividends and repurchases.
- Test payout sustainability under stress.
Concepts
Key concepts
- Distributable cash
- Dividend
- Share repurchase
- Payout ratio
- Reinvestment
- Sustainability
Syllabus
Course structure
- Reinvest or distribute
- Cash capacity
- Dividends
- Repurchases
- Signalling
- Sustainable growth
Extract
Analytical framework
Start from available cash
An operating measure of distributable cash deducts priority uses before discretionary distributions:
Cash available before payout
Maintenance capex and the liquidity reserve require explicit, stable definitions. Otherwise the apparent payout capacity changes with management's classification choices.
Full course
Continue the course
Sign in or create a free RicherFin account to access the complete course, its derivations, formulas and detailed curriculum.