First, the company’s financial condition is not very good. From 2003 to 2004, the gross profit declined from 314,522 thousands to 257,759 thousands. This leads the company suffer from an operating loss in 2004. For the first quarters of 2005, the board declared no dividend. This declaration will beat the confidence of the investors. Second, the company’s sales are heavily relying on the Artificial Workforce and this will be the risk. Although the Artificial Workforce improves the revenue of the company, some factors will destroy the sales of the product. The first factor is the competitors.
There are two strong competitors developing comparable products and would introduce them within the next 12 month. This will reduce Artificial Workforce’s orders and reduce the revenue. The second factor is the software industry is highly cyclical and the strength of the US economy were not encourage. This will also affect the revenue of the company. The Exhibit 8 shows us the projected sources and uses of the company. But, there are still some limits of Exhibit 8. First, we should notice that the CFO took the boldest approach to do the table. This approach assumes that the company would grow at a 15% compound rate.
This is not accurate enough to predict the revenue of the company because many factors will affect the revenue as mentioned above. If the economic is not good enough, the company may suffer from a negative growth. Second, the CFO assumes that the company will pay dividend of 40% of earnings every year. This is not accurate enough, too. The company hasn’t decided which industry to reposition, so the dividend payout ratio should be depending on which industry it belongs to. If the company account into the CAD Company, the payout ratio could be lower than 10%.
The Essay on Top Companies in Indian Steel Industry
The performance of the Indian steel industry has been quite satisfactory over the last decade. Aided by the cutting-edge technology, the steel industry in Asia has made advancements in all areas of operation. There has been a substantial increase in demand for Indian steel products in the global market in the recent times. This has helped in the growth of Indian steel industry. The industry ...
On the other hand, if the company account into the electrical-industrial equipment manufactures, the payout ratio should be higher than 30%. So, the CFO could not decide the payout ratio in advance. Question 2. What are the cons and pros of zero, 20%, 40%, residual dividend payout and the share repurchase. There are several reasons to support the 40% payout ratio. First, 40% payout ratio is higher than the average (36%) of the electrical-industry-equipment industry and the average (26%) of the machine-tool industry. This will give investors a signal that the company had conquered its problems and it has confidence of its future.
Second, borrow money to pay dividends was consistent with the behavior of most firms. Third, according to the experience, it is normal that a growth rate between 10% and 20% should accompany a dividend payout ratio between 30% and 50%. On the other hand, a 40% dividend payout ratio could be risky. Company should borrow money to pay the dividends and will increase its leverage. This could increase the risk of bankruptcy. The residual-dividend payout suggests that the company should pay dividends only after it had funded all projects that offered positive NPV.
This approach is more conservative and the company could build trust with investors and be rewarded through higher valuation multiples. According to the “irrelevant” in a growing firm, any dividend paid today would be offset by dilution in the future. This theory could support this policy as well. But the residual-dividend payout policy still has some disadvantages. For example, the dividend payments under this policy would be unpredictable. The company’s own price may collapse following its dividend cut. The zero-dividend payout policy may indicate that the company emphasis on the advanced technologies.
The Review on Determinants of Dividend Payout Ratio
Determinants of Dividend Payout-Ratio: A Study of Philippine Stock Exchange-Listed Banks, 2007-2011 Introduction Dividend policy is one of the most controversial subjects in finance literature and still `management always ponders about the dividend payment and also why investors need to pay attention on dividend. It is also a corporate profit that is paid out or considered as an income by the ...
This policy will give investors a signal that the company has belonged in a class of high-growth and high technology firm. But how would the market react? No one knows the answer. Question 3. How the profile of Gainsboro’s equity owners and what type of firm it wants to reposition itself may influence the choice of its dividend policy. There are four numbers we should notice in Exhibit 4. One is the percentage of growth-oriented investors under the institutional investors. The percentage dropped from 13% in 1994 to 6% in 2004. The second number is the percentage of value-oriented investors increased from 8% in 1994 to 13% in 2004.
The growth-oriented investors focus of the earning per share and always look for companies expected to have rapid EPS growth. The value-oriented investors focus on the price components and not care much about current price. These changes indicate that institutional investors think the company as an electrical-industrial equipment manufacture rather than an CAD company. On the other hand, the percentage of long-term investors declined from 37% in 1994 to 26% in 2004. The percentage of short-term investors increased from 5% in 1994 to 13% in 2004.
This may give us a signal that individual investors think the company becomes riskier than before. Also, individual investors think the company as a CAD company rather than an electrical-industrial equipment manufacture. If the company wants to attract more individual investors, it should reposition itself a CAD company and use the zero dividend payout policy. On the other hand, if the company wants to attract more institutional investors, it should reposition itself an electrical-industrial equipment manufacturer and accept the 40% dividend payout policy.
What might be the impact of the considered name change on the dividend policy? The name of “Gainsboro machine tools corporation” may give investors an image that the company emphasis its business on the equipment manufacture. The farm-equipment, machinery parts are the historical products of the company. But nowadays, the company has entered the new field of computer-aided design. Additional, the CAD equipment and software were responsible for about 45% of sales. This means that the company has emphasized its business on the software. The considered name of “Gainsboro Advanced System International, Inc.
The Business plan on The Boeing Company Marketing Policy
CONTENTS 1. COMPANY OVERVIEW... p. 3 to 4 Company's vision, mission statement and objectives Vision... p.3 Boeing- Airbus market share... p. 42. SITUATION ANALYSIS... p. 5 to 10 PEST analysis...p. 5 SWOT analysis... p. 7 Boeing Corporate Culture... p. 103.THE BOEING COMPANY MARKETING POLICY... p. 11 to 30 Segmentation... p. 11 Boeing's Positioning and Targeting Strategy...p. 12 Buyer behaviour... ...
” indicates that the company belongs to the software and hardware industry. If the company decides to use the considered name, the best dividend policy would be the zero dividend payout policy. If the company uses the original name, they should accept the 40% dividend payout policy. Question 5. What should Ashely Swenson recommend to the CEO and the Board? Ashely should recommend the CEO and the Board to change the dividend policy to the zero payout and change the company name. From the article we can easily figure out that the company’s business has changed.
It has entered into a new field, which is the software and hardware industry. This new field contributes large percentage of revenues to the company. The new name could give investors correct information of the company’s business. Since the company has emphasized its business on software and hardware, the dividend policy should accord with the industry’s dividend policy. Most CAD companies accept the zero dividend policy because they can use the cash to develop new technology. Ashely should recommend the company to do so. Also, accept the high payout ratio policy will increase the company’s leverage.
From exhibit 2 we can find that the company’s bank loans increased from 34196 in 2003 to 71345 in 2004. The high leverage increases the risk of the company. If the company chooses to borrow money to pay dividends, the leverage will be higher. Besides these, Ashely should recommend the CEO and the Board to expand the global market. We have noticed that the US market of the high technology has not as good as before. But the global market contributes large percentage of sales to the company. So, expand the global market is a good strategy for the company.
