Gamble Limited is a company dealing in healthcare products The company is earning high profits but i...........

Gamble Limited is a company dealing in healthcare products. The company is earning high profits but is short on cash, so it has decided to declare less dividends in the current financial year. Identify the factor related to dividend decision being described in the above lines.

Preference of shareholders

Earning

Cash flow position

Contractual constraints

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Explanation:

- Gamble Limited is earning high profits but has limited cash available. Thus, it decides to declare fewer dividends. This indicates they are focusing on conserving cash rather than distributing it as dividends.

- Option 1: Preference of shareholders

- This involves considering what shareholders want regarding dividends, some may prefer high payouts while others prefer reinvestment for growth.

- Option 2: Earning

- High profits typically indicate a company's ability to pay dividends, but profits don't always equal cash availability.

- Option 3: Cash flow position

- A company's cash flow position is crucial for dividend decisions. A company may have high profits but still lack sufficient cash to distribute as dividends.

- Correct Answer: A strong cash position allows for dividends, even if earnings aren't high. In this situation, cash flow constraints are leading to lower dividends despite high profits.

- Option 4: Contractual constraints

- Contracts may limit how much dividend a company can pay, to ensure it can meet its obligations. However, this is not the focus here.