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 business development.
Dividends are declared and paid twice a year, one is called the interim dividend, and the other is the final dividend.
- An interim dividend is declared and paid before the company’s annual financial statements are prepared, while the final dividend is declared and paid after the financial statements are prepared.
- An interim dividend is paid out of the company’s accumulated profits, while the final dividend is paid out of the company’s current year’s profits.
- An interim dividend is paid to registered shareholders on a specific date. In contrast, a final dividend is paid to shareholders registered on the annual general meeting date.
Interim Dividend vs Final Dividend
The difference between an interim dividend and a final dividend is that the interim dividend is distributed among shareholders by board members in the middle of the year, and the shareholders declare the final dividend annually. The final dividend includes an interim dividend; sometimes, an interim dividend is reported as the final dividend in the annual meeting.
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Board members review the previous year’s and the half-year earnings to prepare the interim dividend report. The shares are given to its shareholders 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 earnings 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.
|Parameters of Comparison||Interim Dividend||Final Dividend|
|Definition||The interim dividend is the fraction of profit remitted among the shareholders in 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 owner holds the final dividend 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||The board of directors can retrieve the amount if the company provokes loss after the profit distribution.||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, board members distribute the profits among shareholders two times a year. First, the quarterly dividend is referred to as the interim dividend, and the 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 for retrieving the dividends contrarily and is liable for the loss.
Most companies do not use the interim dividend as the distribution amount is less than the final dividend. The interim dividend report has to be stated according to the company’s act. The distribution tax must be returned before distributing the interim dividend.
The interim dividend should not exceed the average dividend rate for the preceding three years. The interim dividend requires the authorization of articles before declaring the dividends.
What is the Final Dividend?
The final dividend is the dividend returned to the shareholders at the end of the fiscal year. The final dividend is the profit the organisation earns 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, which are stated from different sources like free reserves, current profit, and previous year’s profits.
The company announces the final dividend in the final annual conference, and the shares are not revocable by the board members. The final dividend is the final report, which any company member cannot change.
The final dividend has a positive reaction to the interim dividends. The company has to follow the rules and regulations to create final and interim dividends.
The final dividend contains interim dividends, and sometimes, the company declares an interim dividend as the final dividend if no additional profit is 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. In contrast, the final dividend is generated based on the profits earned in the current and previous years and 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 dividends, whereas it is more than the average distribution of dividends in the final dividend.
- The interim dividend is returned in advance, and the final dividend is returned after the fiscal year.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.