公司财务dividends.pptVIP

The Basic Decision Cash from operations Dividends Stock repurchase Investments Borrowings Equity issue Dividends Irrelevance of dividends Current dividends versus capital gains (Retention of earnings) ROI versus cost of capital Invest when ROI COC Return money to shareholders when ROI COC Different Types of Dividends Many companies pay a regular cash dividend. Public companies often pay quarterly. Sometimes firms will throw in an extra cash dividend. The extreme case would be a liquidating dividend. Often companies will declare stock dividends. No cash leaves the firm. The firm increases the number of shares outstanding. Some companies declare a dividend in kind. Wrigley’s Gum sends around a box of chewing gum. Dundee Crematoria offers shareholders discounted cremations. Stock Repurchase Alternate to payment of cash dividends Taxability Shareholders profile. Retail : Lower capital gains versus tax on dividends Institutional : Tax free entity Cash Dividend –Repurchase Equivalence Earnings = 6000. No of shares =1000. EPS =6 P/E ratio = 4.5 Market Price = 27. Dividend = 3 Total value = 27+3 =30 Alternative : To buyback shares at Rs 30 No of shares purchased = 3000/30 = 100 Balance shares 900 New EPS = 6000/ 900 = 6.67 Market Price = 6.67* 4.5 = 30 Two Decisions Return money to shareholders Dividend versus Stock buyback The MM Hypothesis The irrelevence argument Dividends valuation Leverage irrelevence theorem. Raising of external finance. The Rightists Traditional Belief Market imperfections Free cashflow hypothesis The Radical Left Dividends vis-à-vis Stock repurchase Zero payouts? Lintner Model Firms have long run target dividend payout ratios. Mature companies with stable earnings generally pay out a high proportion of earnings. Growth companies have low payouts. Managers focus more on dividend changes than on absolute levels. Thus, paying a Rupee 2.00 dividend is an important financial decision if last year’s dividend was rupee 1.00, but no