Stock Valuation
The value of a company’s stock may entice an investor to offer money. Without knowing the proper value of stocks, investors are hard-pressed to find the right time to buy or sell shares; and investors may miss opportunities solely on the stock’s market value (Zacks, n.d.). The following sections shall (1) calculate the Company’s SV based on its dividends*; and (2) discuss both those calculations’ effect on shareholder value* and the Company’s dividend policies.
Calculations
To begin the calculations, the data points of cash dividend* per share, dividend yield*, and the stockholder’s equity* from the Company’s FY2012-14 financial statements are required. To obtain the dividend yield, the following equation shall be
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Keeping the Company’s goal of maximizing shareholder value in mind, the best option based on the aforementioned calculations is for the Company to increase dividend per share by $1.75. A crucial source for increases in a business’s dividend per share payout is a swing in growth strategy leading to the business’s decision to expend less of its earnings in seeking growth and expansion, thus leaving a greater segment of profits available to be given to investors in the form of dividends (Maverick, 2015). The uptick in dividend per share gives an investor more “bang for their buck” as it ultimately affects the ROI. Further, this is apparent when comparing recalculated ROI. In Table 3: ROI Comparisons, ROI #1 represents the ROI based on actual dividends per share; ROI #2 represents the recalculation based on the $1.75 increase.
Table 3: ROI Comparisons
Fiscal Year (FY) ROI #1 ROI #2 % Increase
2012 1.67% 3.42% 205%
2013 1.71% 3.46% 203%
2014 2.24% 3.99% 178%
Based on the comparison, the increased dividend per share clearly supports the idea of shareholder maximization, while the other options are not as supportive.
Dividend Policies
The Company has noted that, in addition to making disciplined decisions regarding capital allocations, focus has been maintained on expense control, resulting in higher returns on invested capital and allowing for a return of value to shareholders through $7.0 billion in share repurchases and $2.5
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The questions that follow and the article Comparing the Accuracy and Explainability of Dividend, Free Cash Flow, and Abnormal Earnings Equity Value Estimates will inform your completion of Milestone Three. An understanding of the models in this assignment will assist you in hypothesizing the incremental impact of a new investment project for the company. The understanding of these models will contribute to your ability to look toward the future when considering the direction of an organization. This activity is worth a total of 75 points. See the distribution of points listed before each question.
A constant annual rate of dividend growth of 9 per cent is expected on a particular
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This past year here at company X we have had a very profitable year; and it’s important that we do everything that we can to make sure that we maintain this strong progression forward. Now, of course we have made strong financial strides; and we will continue to improve on the external factors that have gotten us to this point. However, I feel that it is imperative that we also pay close attention to the internal factors that will pay dividends for this company in the long run.
“Financial Statements…provide key information for internal and external decision making.” (Horgren, et al., 2015). Through analysis of the financial information of both JB Hi-Fi and Dicksmith, I have found that investing within JB Hi-fi would be a more profitable and beneficial for shareholders. Moreover not only does JB hi-fi’s financial information (Appendix 1) show that return on Shareholder’s equity is close to 48% of each dollar
Equity shares can be described more easily than fixed income securities. However, they are more difficult to analyse. Fixed income securities typically have a limited life and a well-defined cash flow stream. Equity shares have neither. While the basic principles of valuation are the same for fixed income securities as well as equity shares, the factors of growth and risk create greater complexity in the case of equity shares .
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As we know that, every company or firm must set up with their goals as a guide for them to gain achievement. Hence, there is an appropriate goal for the firm which is maximization of shareholder wealth. As assistant financial analyst, we have the responsible to maximize the value of shareholders and it is directly increase the value and performance of the firm. "Value is represented by the market price of the company's common stock, which, in turn, is a reflection of the firm's investment, financing, and dividend decisions." (Horne, 1974).
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