Interrelationships between Financial Ratios and Dividend Policy: The Evidence of Healthcare Equipment and Service Sector in Malaysia

Abstract

A company's dividend policy is measured by the dividend payout ratio which is the total amount of dividends paid out to its shareholders relative to the company's net income. In contrast, the ability of a company to make a profit is measured by its financial performance, which is generated from the revenue and aggregate expenses line items on the income statement. The financial performance consists of calculating financial ratios analysis such as liquidity, activity, leverage and profitability ratio. The purpose of this study is to examine the relationship between financial ratios analysis and dividend of Malaysia's healthcare equipment and services sectors. This study also wanted to examine the effects of the financial ratios that affect the dividend payout ratio of healthcare equipment and services companies that had been listed under Bursa Malaysia. The international economy, especially the healthcare industry, has recently been impacted by the COVID-19 outbreak. The significant business opportunities that have developed due to the pandemic have piqued the interest of investors in this industry. As a result, it is important to recognize the factors that influence healthcare companies' dividend policy in a developing market, especially in Malaysia (Latif et al., 2021). In this research, dividend payout ratio (DPR) is chosen as a dependent variable. It is measured by its independent variables which are current ratio (CR), total assets turnover ratio (TATO), debt ratio (DR) and return on investment ratio (ROI) respectively. The method used in this study is multiple linear regression, descriptive analysis, and correlation coefficient. The findings show that only the Current Ratio (CR) and Total Assets Turnover (TATO) have a significant relationship. For further studies, researchers can extend the research by changing the dependent variable from the healthcare sector to the financial sector or any other sector that was affected due to Covid-19.