Why dividend paid in case of financing companies are considered as financing activity?
Hi Riya,
Dividend paid is always a financing activity, whether paid by a financial enterprise or a non-financial enterprise. This is because dividend expense is associated with raising finance for the business. That is, when funds are raised by issuing equity/preference shares, then the company has to pay dividend and so it is included in the financing cost for a company.
Likewise, financing companies also require certain funds for operating its business. And so, funds raised by these companies for their operational purpose must be included in their financial cost.
Dividend paid is always a financing activity, whether paid by a financial enterprise or a non-financial enterprise. This is because dividend expense is associated with raising finance for the business. That is, when funds are raised by issuing equity/preference shares, then the company has to pay dividend and so it is included in the financing cost for a company.
Likewise, financing companies also require certain funds for operating its business. And so, funds raised by these companies for their operational purpose must be included in their financial cost.