Dividend Policy

Grand Metropolitan's P/E ratio is noticeably lower when compared to the other companies within its segmented segments. We found that these low P/E ratios combined with increased profits made Grand Metropolitan a potential target for corporate raiders, i.e. takeover risk.

As of February 17, 2017 at 4:29 PM EST the price of a stock was 45.12 US Dollars with a 2.28% drop of price. Then P/E Ratio is currently at 18.54 and with current Earnings per Share value of .411. The first issue is that the stock price has been dropping since 2014 and kept falling. In 2014, the price of stock was at 72.53

Based on my full ratio analysis, the first reason would be due to the earnings per share. The current year has a ratio of $0.11 per share and based on the 79.20% net income decrease makes this a low ratio. The low ratio solidifies a weakness in the company because the ratio measures the share of profits that will be allocated to each share of outstanding stock.

Valuation Estimates: Actual Price (6/1/07): $21.63 Trailing P/E $9.57 Forward P/E $7.80 PEG $2.92 P/B $54.00 P/EBITDA $28.24 P/FCF $123.39 EV/EBITDA $3.54 Intrinsic Valuations Discounted Dividend Free Cash Residual Income LR ROE AEG Actual $18.40 $29.71 $3.22 $7.21 $8.79

In February 1998, GM announced a four billion dollar stock buyback program to decrease the number of outstanding shares and lower the amount of dividend payments. This corporate action was completed in December 1999 and they used over 2.6 billion dollars in cash to finalize the program in 1999.(GM 1999 77) This action shows that GM is committed to primarily issuing new debt to finance any capital needs. The one benefit of this action is the amount of dividends that GM will have to pay out to the current shareholders. In 1998, GM had to pay out 47% of its earnings to keep its fixed dividend policy of $2.00 for the year. When companies are paying out that much of earnings that can have a negative effect on product development and corporate expansion

When a company is growing so fast, it is a good idea to look at how it is paying for the growth. A good way to do that is by looking at the current ratio because it shows assets compared to liabilities. CMG’s current ratio over this time period has varied a good bit: 2013 = 3.34, 2014 = 3.5, and 2015 = 2.91. What stands out in that is the decrease in 2015 which could indicate issues with the company. However, after looking more in depth, it can be seen that this decrease is most likely related to the company’s fast growth in that year and its need to finance the growth. In addition, CMG’s

Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.

The earnings per share of the common stock is a financial metric for a business' net income believed to be available to reward the common stock shareholders. The ratio is usually calculated by dividing the difference between the net after-tax profits and dividends attributed to preferred shareholders with the average number of outstanding common shares. Significantly higher earnings per share imply that the business is capable of paying reasonable dividends to the common shareholders while a low ratio indicates a reduced ability for the entity to declare and pay reasonable dividends to its common shareholders. From the comparison, Nike has a higher EPS ratio at 1.05 compared to 0.98 for Under Armour. This implies that Nike is performing better than Under Armour and that Nike could be either making increasing earnings or repurchasing its stocks while Under Armour is performing dismally. This low ratio for Under Armour is an

Question 1 Performance Evaluation Calculation Discursive 20% 80% Question 2 Dividend Valuation Model 45% 55% Question 3 Option strategies Straddles 80% 20% Question 4 Duration and convexity –Price – yield relationship 30% 70% Question 5 Option and Futures -mixed N/A 100% Question 6 CAPM 40% 60%

Since the emergence of the so-called irrelevance theorem by Miller and Modigliani (1961), many corporations are puzzled about why some firms pay dividends while others do not. They were the first to study the effect of dividend policy on the market value of firms by assuming that there are no market imperfections. Miller and Modigliani (1961) proposed that divided policy chosen by a firm has no significant relationship in as far as the market valuation of the firm is concerned. They went further to explain that; the shareholders wealth remains unchanged irrespective of how the firm distributes it income because the firms’ value is rather determined by their investment policies and the earning power of its assets. They further stated that the opportunity to earn abnormal returns in the market does not exist, that is, owners are entitled to the normal market returns adjusted for risk.

While analyzing AT& T a few differences are noted. As with Verizon, the current ratio did improve with an increase of five percent from 58% in 2005 to 63% in 2006. However, even though debt to equity decreased for both companies AT & T's decrease was only 4% compared to Verizon's significant decrease of 23%. The net profit margin ratio did opposite changes between the two companies while Verizon's increase not even one full percent AT &T's decreased by almost 3%. Even with these significant changes AT & T's price to earnings, as of 2006, was at 20.89 (www.hoovers.com). These variances tell us a couple of things. First, that AT& T has taken on more debt in 2006 versus 2005, but along with that debt they have been able to increase their net profit margin, helping the company in the way of earnings. The strong price to earnings ratio of 20.89 also shows that the shareholders are not faring too poorly either.

The Earnings Per share in 2012 and 2013 were $2.90. This is an indicator that the company is still profitable since the ratio is a constant. The price per earnings in 2012 was 12.5 and 17.7 in 2013. A decrease in the price per share may indicate a vote of no confidence to investors. However, this can be attributed to the industry sector as well the stock.

In practice, dividend policy will be affected by taxes as tax rates for different categories of investors will differ. Also, a firm’s dividend policy is perceived by the financial markets to be a signaling mechanism. A cut back in dividends may signify that the firm perceives tough

A low Debt to Equity means less risk of losing profit. Over 3 years, this percentage has decreased and increased most likely due to the international expansion. It may seem like an unfavorable trend, but in this companies case, it is favorable due to their past success.

A dividend is a usually distributed in cash form to stock holders of a corporation approved by the board of director. It may also include stock dividend or other forms of payment. A stock dividend represents a distribution of additional shares to common stockholders. Dividends are only cash payments regularly made by corporations to their stockholders.