...1. Profitability A firm which has stability of earnings may formulate a more consistent dividend policy than those having an uneven flow of incomes. This is because they can predict easily on their savings and earnings. Therefore, investors always prefer to invest in those companies. Usually, enterprises dealing in necessities suffer less from oscillating earnings than those dealing in luxuries or fancy goods. 2. Expectations of shareholder Although the rate of dividend is decided by the directors, the expectations of the shareholders having a strong influence on the dividend payout of the firm. On the other hand, the firm may resorts to the retained earnings if the shareholders were desire toward the capital gains or dividend. Typically, shareholders expect two types of returns, there are [i] Capital Gains: i.e., an increase in the market value of shares. [ii] Dividends: regular return on their investment. Cautious investors look for dividends because It reduces uncertainty (capital gains are uncertain). Besides, it is also an indication of the company’s financial strength. Some investors may be invested in shares so as to get regular income to meet their living expenses. 3. Financial Needs of the Company If the company has profitable projects and it is costly to raise funds, it may decide to retain the earnings. Typically, companies tend to have low-paid if there is a profitable investment opportunities. On the contrary, companies often resort to high-paying if the...
Words: 942 - Pages: 4
...1. Georgia Lazenby believes a current liability is a debt that can be expected to be paid in one year. Is Georgia correct? Explain. Yes, I believe that Goergia Lazeby is correct, because it is a debt making it a liability that needs to be paid within a year. 7. (A) what are long-term liabilities? Give two examples. (b) What is a bond? A long-term liability is something like a bond or long term notes that should be paid with in one year. A bond is something issues by the government or corporation that is and interest bearing note. 8. Contrast these types of bonds: (a) Secured and unsecured. Secured bonds are backed by collateral unsecured bonds are based on trust of re-payment. (b) Convertible and callable Callable bonds mean you can take funds before the maturity date of the bond. Convertible bonds are mixture debt that can be used for stock. And can’t be used until maturity date. 19. Valentine Zukovsky says that liquidity and solvency is the same thing. Is he correct? If not, how do they differ? No they are not the same thing. Liquidity means you have a year to pay with solvency you can pay when ever. BE10-1 Kananga Company has these obligations at December 31: A note payable for $100,000 due in 2 years. That would be long term Liability. A 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments. This is liquidity for the 20,00 due in a year. Interest payable of $15,000 on the mortgage. Current asset Accounts payable...
Words: 661 - Pages: 3
...|Held-to-maturity securities| ____ 2. When an investor uses the cost method to account for investments in common stock, cash dividends received by the investor from the investee should normally be recorded as a.|a deduction from the investment account.| b.|dividend revenue.| c.|an addition to the investor's share of the investee's profit.| d.|a deduction from the investor's share of the investee's profit.| ____ 3. A debit balance in the account Market Adjustment-Trading Securities at the end of a year should be interpreted as a.|the net realized holding gain to date.| b.|the net unrealized holding gain to date.| c.|the net realized holding gain for that year.| d.|the net unrealized holding gain for that year.| ____ 4. If the combined market value of trading securities at the end of the year is less than the market value of the same portfolio of trading securities at the beginning of the year, the difference should be accounted for by a.|reporting an unrealized loss in security investments in the stockholders' equity section of the balance sheet.| b.|reporting an unrealized loss in security investments in the income statement.| c.|a footnote to the financial statements.| d.|a credit to Investment in Trading Securities.| ____ 5. When an investor uses the equity method to account for investments in common stock, cash dividends received by the investor from the investee should be recorded as a.|an increase in the investment...
Words: 1435 - Pages: 6
...Table of Contents | | Page | | Chapter 1 | | 1.0 | Introduction | | 1.1 | The background of dividend reinvestment plans in Malaysia | | 1.2 | Discussion on relevant issues | | 1.3 | Problem statement | | 1.4 | Objectives | | 1.5 | Significance of the study | | 1.6 | Scope of the study | | | | | | Chapter 2 | | 2.0 | Introduction/ An Overview | | 2.1 | Theoretical Framework of DRIP in Investors’ Point of View | | 2.2 | Theoretical Framework of DRIP in Investees’ Point of View | | 2.3 | Concluding Remarks | | | | | | Chapter 3 | | 3.0 | Introduction | | 3.1 | Data Description | | 3.2 | Theoretical Framework | | 3.3 | Empirical Model of the study | | 3.4 | Methods to be Used | | 3.5 | Concluding Remarks | | | | | | References | | | | | 1.0 Introduction: Dividend Reinvestment Plan (DRIP) is an equity investment option that allows shareholders’ dividends directly purchase shares of common stock of the paying corporation instead of receiving cash dividends without going via a stock broker. There are three different types of DRIP which are open-market DRIP, new-issue DRIP and combination of open-market and new-issue DRIPs. Open-market DRIP is where the firmuse reinvested dividends to buy its outstanding shares in the open market to satisfy the needs of participating shareholders. New-issue DRIP is where the firm raises capital by selling their authorized but unissued shares or treasury stock...
Words: 9673 - Pages: 39
...Synopsis and Objectives Other cases in which dividend policy is an important issue: “Deutsche Brauerei,” (Case 11) In mid September 2005, Ashley Swenson, the chief financial officer (CFO) of a large computer-aided design and computer-aided manufacturing (CAD/CAM) equipment manufacturer needed to decide whether to pay out dividends to the firm’s shareholders, or to repurchase stock. If Swenson chose to pay out dividends, she would have to also decide upon the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising, and change its corporate name to reflect its new outlook. The case serves as an omnibus review of the many practical aspects of the dividend and share buyback decisions, including (1) signaling effects, (2) clientele effects, and (3) the finance and investment implications of increasing dividend payouts and share repurchase decisions. This case can follow a treatment of the Miller-Modigliani dividend-irrelevance theorem and serves to highlight practical considerations to consider when setting a firm’s dividend policy. Suggested Questions for Advance Assignment to Students The instructor could assign supplemental reading on dividend policy and share repurchases. Especially recommended are the Asquith and Mullins article on equity signaling, and articles by Stern Stewart on financial communication. 1. In theory, to fund an increased dividend payout or a stock buyback, a firm might invest...
Words: 5756 - Pages: 24
...should give back to its investors or not. Haveloche is constantly faced with the predicament of deciding what dividend policy is best for the organization and the investors. The company’s CEO listed the stock prices and dividends for us to take a look at, so let us do just that. Below are the two scatter plots created from the information given in the case. The first scatter plot charts the dividend and the stock price. As you can see from the scatter plot, there is no obvious correlation between the two. The dividend does not necessarily move in the same direction or the opposite direction of the stock price. The second scatter plot charts the change in the stock price with the dividend. As you can also see with this scatter plot, there is no real correlation between these two. There are 3 theories of investor preference for dividend versus capital gains: (1) Dividend Irrelevance Theory or Modigliani Miller (2) “Bird-in-the-hand” Theory (3) Tax Preference Theory. According to Modigliani Miller (MM), the dividend policy has not effect on the stock price of the firm or the cost of capital. This theory states that investors reinvest the dividends back into the firm and the firm’s value is only based on the income produced from its assets, and not the dividends and retained earnings. According to the second theory, the “Bird-in-the-hand” theory, dividends are known and stable and...
Words: 719 - Pages: 3
...Financial analysis of The Warehouse As one of New Zealand’s largest retailers, known and loved by Kiwis for its wide range of products from clothing, entertainment, technology and music to sporting, gardening, grocery and many others, The Warehouse has been providing Kiwis with "a bargain" since 1982. With 88 stores throughout New Zealand they remain a New Zealand owned and operated company employing nearly 9,000 team members from Kaitaia in the north to Invercargill in the south (The Warehouse, 2011). In order to judge the financial health of the company, let us look at its annual figures for 2009 and 2010. Based on the below table we can see that the total sales for the company has decreased from $1,720,755 to $1,672,695 in 2009 to 2010 respectively. There has also been a significant drop in its cost of goods sold. Their opening inventory reduced that means that the company has been able to sell most of its inventory which is a good sign for the shareholders and shows constant cash flows of the company in the two years. [pic] Though their net profit before tax for the year 2010 was much higher than that of the previous year, their net profit after tax fell from $76,996 to $60,540. The company paid more in interests and income tax. This can be attributed to the increased tax rates. The company had less equity at the beginning of the year 2010 compared to its previous year which reflected in the decline of the closing equity. Nonetheless, the company...
Words: 1484 - Pages: 6
...Corporate Ownership * Shares of stock can be purchased in small amounts. * Ownership interests are transferable. * Stockholders are not liable for the corporation’s debts * Common stock – the basic voting stock issued by a corporation to stockholders. * Voting rights * Dividends * Residual claim – if the company ceases operations, stockholders share in any assets remaining after creditors have been paid. * Preemptive Rights – existing stockholders may be given the first chance to buy newly issued stock before it is offered to others. * Equity vs. Debt Financing * Equity financing – issuing new stock to investors * Debt financing – borrowing money from lenders * All transactions between a company and its stockholders affect the company’s balance sheet accounts only. * Common Stock Transactions * Contributed capital – reports the amount of capital the company received from investors’ contributions, in exchange for the company’s stock. * Retained earnings – reports the cumulative amounts of net income earned by the company less the cumulative amount of dividends declared since the corporation was first organized. * Treasury stock – reports shares that were previously owned by stockholders but have been reacquired and are now held by the corporation * Authorization, Issuance, and Repurchase of Stock * Authorized shares – the maximum number of shares of capital...
Words: 3624 - Pages: 15
...will be handed in through Blackboard, the exact procedure will be posted there) that answers the following questions. Show your calculations in the report! I. Regarding the situation at the start of 2006: A.Value Wal-mart's stock using the dividend discount model. Include in your answer valuations based on the following assumptions: 1. constant growth of dividends; use the data in exhibit 3. 2. a multi-stage development of dividends (analogous to the three-stage approach by Bloomberg mentioned in the case) For both models, use both an 8% and a 9% discount rate. Comment on the differences. B. Assuming Wal-Mart (to be precise, its revenue) keeps growing at 13.7% a year, and the US economy grows at 3% a year, in which year would Wal-Mart be bigger than the US economy? (assume that the size of the US economy in 2006 was $ 12500 billion). What are the implications of this curious bit of information? C. Determine Wal-Mart's stockvalue using the price/earnings multiple. Comment on which data you think is relevant to be used as inputs. D. Determine the discount rate for Wal-Mart's equity using the CAPM. With a market price of $49.47, which growth rate for dividends would be expected by the market assuming that the constantgrowth Discounted Dividend Model of question A1 is correct? Comment on the...
Words: 465 - Pages: 2
...Avon Products 1. Why was Avon restructuring its business in 1988? Did the changes make sense? In the early 1980s, Avon made several major decisions to diversify its business, first to enter the health care field by acquiring a chemical company, Mallinckrodt, Inc. for $710 million in 1982. Before the acquisition happened, Avon’s beauty products sales and margin had already started to decline due to the decreasing number of housewives. Together with the cash spent on the acquisition, Avon was facing a sudden weakening cash flow position by mid-1982. By August 1982, Avon’s stock price has drop from $30 to $20.375 per share and dividend reduced from $3.00 to $2.00. Then Avon acquired Foster Medical Company in 1984, Retirement Inns of America in 1985 and the Mediplex Group in 1986 to get more exposure to the health care industry. In 1986, Avon sold Mallinckrodt, Inc. at a loss of $35 million. However, a change in Medicare in 1986 made a negative impact on Foster Medical’s revenue, and caused the board to doubt their commitment to the health care industry. In 1988, the group began the process of selling the entire Foster Medical Corporation with an anticipation of loss of $125 million. The beauty business of Avon improved in 1987 and the groups made acquisitions of Giorgio, Inc. for $165 million and Parfums Stern, Inc. for $160 million. Avon was restructuring its business by selling health care companies and acquiring beauty companies to broaden their beauty business. ...
Words: 1526 - Pages: 7
...ratios and vertical and horizontal analysis in regards to deciphering financial statements. Lastly, we talked about preferred and common stocks are issued, placed as journal entries on financial statements and the paid out in dividends. With these topics we got to see why financial statements are compiled the way they are and it gave us a better understanding of how they work for a company. Each week the understanding is getting greater on financial statements. Financial statements are analyzed by corporations so that they are able to see and identify their strengths and possible weaknesses. Identifying the relationship with the balance sheet and a company’s profit and loss accounting will help in the decision making process on whether to proceed with certain things or to either change or eliminate them all together. External users of a company look at the information on financial statements to decide whether or not they want to invest or issue credit but the company also uses these statements to help make the hard decisions that management needs to build a company with staying power. Through issue of common and preferred stocks we must pace the journal entries on our statements and then we use that information when we are paying out dividends as well. There are multiple ways to analyze financial statements, this week we focused on ratio, vertical and horizontal analysis. In the statement of cash flows net income must be converted from an accrual to a cash basis....
Words: 1044 - Pages: 5
...Cash dividends is a distribution of cash to shareholders. For a corporation to pay a cash dividend, it must have all three of the following: 1. Enough retained earnings 2. Enough cash 3. A declaration of dividends On the declaration date, a company’s board of directors formally declares the cash dividend and announces it to shareholders. ● An entry is required to recognize the increase in cash dividends and the increase in the current liability dividends payable. Example: To illustrate a cash dividend paid to preferred shareholders, assume that on December 1 the directors of Media General declare a $0.50-per-share quarterly cash dividend on the company’s 100,000, $2- noncumulative preferred share. The dividends totals $50,000 ($2 4= $0.50 X 100000) and is payable on January 23 to shareholders of record on December 30. Declaration Date Dec 1 Cash Dividends- Preferred 50,000 Dividends Payable 50,000 ● The balance in dividends payable is a current liability. On the record date, ownership of the shares is determined so that the corporation knows who to pay the dividend to. On the payment date, dividend cheques are mailed to shareholders and the payment of the dividend is recorded. Example: Payment Date Jan23 Dividends Payable 50,000 Cash 50,000 ● The cumulative effect of the declaration...
Words: 1542 - Pages: 7
...when his 72-year-old father was killed in an automobile accident. Industrias La Vega was a Spanish meat-processing business that produced hams, sausages, and other delicacies for domestic and export markets. The $104.8-million-a-year business was demanding, of course, but Francisco Jr. felt most challenged by the family conflicts that often overwhelmed him. The ownership structure of Industrias La Vega had been updated just months before the tragic accident involving Francisco Sr. At the request of Francisco Jr., who was concerned about the possible loss of control of the enterprise he had co-managed with his father for years, Francisco Sr. and his attorneys had created two classes of stock. The voting A shares did not pay dividends. The nonvoting but dividend-bearing B shares had a par value 10 times higher than that of the A shares. Except for brief stints, none of the Valle daughters had worked in the business prior to their father’s death. Ana, the second eldest daughter, was an artist, and she had been instrumental in designing the image and logo of a new premium product line. Working alongside her father, she had created the look for the Gold Label line of meats and cold cuts, Francisco Jr. had not been particularly enthusiastic about this new line. Mari, 27, the youngest of the Valle siblings, was concerned about her future and the security of her own young...
Words: 3461 - Pages: 14
...the company became more profitable and experienced internal growth through intensive marketing and computerisation of operations. In order for the company to continue expanding its revenues the president Mr. Evans advocated the acquisition of Midland Freight. External financing of $50 million would be required to accomplish this goal. However, the directors have a difficult challenge with regard to the appropriate method of financing. Through extensive discussion and evaluation the directors identified three distinct options, namely, selling $50 million in bonds at a 10% interest rate to a California Insurance Company or issuing 3 million in common stocks at $17.75 per share with a dividend rate of $1.50 per share or issuing 500 000 preference shares at a par of $100 per share and with a dividend rate of $10.50 per share (See appendix A for case assumptions). Discussion 1. Given the nature of CCI’s business how much debt can it support? Continental Carriers Inc. must possess certain organizational and structural characteristics if it has to finance its future acquisitions by long term debt. The nature of an incorporated business allows it to enjoy the benefits of liability protection, tax savings, business credibility, ease of raising capital, prestige for the corporate officers, perpetual duration and its centralized management. Consequently, businesses such as this one would be typically expected to be...
Words: 3943 - Pages: 16
...Investment Summary An Analysis of the Food and Beverage Industry by Alexander Raifeld Mark Gurfinkel Rajeev Rao Hao (Sara) Xi Shivanker Saxena Valuation results Campbell Soup Risk Characteristics Approach Beta Jensen's Alpha R squared Investment Performance ROE - COE ROC - WACC EVA (Millions) Capital Structure Current Debt rati o Optimal Debt Rati o Change in WACC Duration (Years) Dividend Policy Dividends (Millions) FCFE (Millions) Valuations Value/share Price/Share 259 428.0 27.45 29.5 0 -$37.0 20.09 30.25 76.70 231.0 35.6 34.4 0 128 38.5 48.7 892.4 309.5 40.5 34.7 B 0.94 0.12% 4% N/A 10.43% 106.5 23.97% 40% -0.15% 0.25 Cheesecake Factory B 0.63 26.97% 13% 7.08% 12.21% 74.46 13.17% 10% 0% 6.99 McCormick Starbucks Sysco B 0.85 8.8% 2% 19.88% 7.20% 422.4 10.08% 30.00% -0.45% 6.09 B 0.66 34.4% 6% 9.05% 2.82% 143 11.5% 20% -0.14% 3.65 B 0.58 7.27% 16% 26.13% 15.76% 690 6.6% 40% -0.47% 7.01 Chapter 1 Corporate Governance Analysis The purpose of this section is to understand the relationship between managers and stockholders Managers and Stockholders Chief Executive Officers CEO Name Age Years at the C ompany Years as CEO CEO Compensation Salary rank within Restaurant Industry Salary Bonus Other Stock Gains Campbell Soup Douglas Conant Cheesecake Factory David Overton 59 30 30 (founder) McCormick Robert J. Lawless 58 28 8 Starbucks Jim Donald 51 3 0* Sysco Richard Schnieders 55 23 2 53 4 4 14 0.9 1.5 1.8 6.6 >50 0.5 0.6 5.4 133...
Words: 315 - Pages: 2
