Business organizations distribute a fraction of profits to their shareholders equal to their shares in the organization. The organization creates a dividend policy that guides the board of directors and financial management to divide the profits into two parts one is distributed among the shareholders, and the other is retained for the business development. Dividends are declared and paid twice a year, one is called the interim dividend, and the other is the final dividend.
Interim Dividend vs Final Dividend
The main difference between interim dividend and final dividend is that interim dividend is distributed among shareholders by board members in the middle of the year, and the final dividend is declared annually by the shareholders. The final dividend includes an interim dividend, and sometimes an interim dividend is reported as the final dividend in the annual meeting.
Board members review the previous year’s earnings and the current half-year earnings to prepare the interim dividend report. The shares are given to its shareholders in advance as expected profit earnings for the next quarter year. If the company does not make profits at the end of the year, then board members are liable for the given profits to the shareholders.
The final dividend is the final payment made to the shareholders at the end of the year. At the end of the year, board members again generate the final dividend report and suggest the company owner announce the shares in the annual meeting. A company may or may not have a final dividend. The company has to report an interim dividend as the final dividend when there is no final dividend for the year.
Comparison Table Between Interim Dividend and Final Dividend
| Parameters of Comparison | Interim Dividend | Final Dividend |
| Definition | The interim dividend is the fraction of profit remitted among the shareholders at the middle of the fiscal year. | The final dividend is an amount from the profits advanced to the shareholders at the end of the fiscal year. |
| Declared by | Board members organize quarterly meetings with shareholders to announce the interim dividend. | The final dividend is held by the owner under the recommendation of board members at the annual general meeting. |
| Payment time | It is the expected profit returned in advance to the shareholders. | It is the actual profit gained by the company and satisfied before the start of next year. |
| Revocation | If the company provokes loss after distribution of profit, the board of directors can retrieve the amount. | The amount returned to the shareholders cannot be recovered after the distribution. |
| Distribution amount | The average distribution is smaller compared to the final dividend. | The average distribution amount is higher. |
What is Interim Dividend?
If the company gains more profit than expected, then board members distribute the profits among shareholders two times in a year. First, the quarterly dividend is referred to as the interim dividend, and second is the final dividend. The board of directors evaluates the profit by taking the profits earned in the past year and the completed half year. The interim dividends are returned to the shareholders in advance. However, if the company fails to gain the expected profit, then the board of directors is accountable to retrieve the dividends contrarily, is liable for the loss.
The interim dividend is not used by most of the companies as the distribution amount is less than the final dividend. The interim dividend report has to be stated according to the companies act. The distribution tax must be returned before distributing the interim dividend. The interim dividend should not exceed the average rate of dividend for the preceding three years. The interim dividend requires the authorization of articles before declaring the dividends.
What is Final Dividend?
The final dividend is the dividend returned to the shareholders at the end of the fiscal year. The final dividend is the actual profit earned by the organization in the fiscal year. The final dividend has a higher rate of dividend than the interim dividend. It does not require authorization of articles to declare the dividends, and the dividends are stated from different sources like free reserves, current profit, and previous year profits.
The final dividend is announced in the final annual conference by the company, and the shares are not revocable by the board members. The final dividend is the final report, and it cannot be changed by any member of the company. The final dividend has a positive reaction to the interim dividends. The company has to follow the rules and regulations to create the final dividends and interim dividends. The final dividend contains interim dividends, and sometimes, the company declares an interim dividend as the final dividend if there is not additional profit incurred in the next half year.
Main Differences Between Interim Dividend and Final Dividend
- Board members generate dividend reports to announce the shares of shareholders, one is an interim dividend that is announced in quarterly meetings, and the other is the final dividend that is announced at the annual board conference.
- The interim dividend is generated based on the assumptions of profit to acquire in the next half-year, whereas the final dividend is generated based on the profits earned in the current year, previous year, and the free reserves.
- An interim dividend is announced in the middle of the year or quarterly, and the final dividend is announced after the end of the fiscal year.
- The rate of a dividend of interim dividend is less than the average distribution of dividend, whereas it is more than the average distribution of dividend in the final dividend.
- The interim dividend is returned in advance, and the final dividend is returned after the fiscal year.
Conclusion
The company pays dividends to its shareholders at the end of every year. The dividends are issued from the overall profit of the organization. Some amount is returned to the shareholders, and some are funded in the business projects. The financial statement includes information on dividends and the performance of the company. It is revealed to the shareholders to attract the investors and shareholders. Both interim dividends and final dividends must get approvals to form the financial institutions and foreign collaborations before declaring in the annual general meetings.
References
- https://su-plus.strathmore.edu/handle/11071/5032
- https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.944.4359&rep=rep1&type=pdf