Financial Analysis of Haveloche Corporation
Haveloche Corporation is a research and development company, which translates into sporadic cash flows over time. There are times when genius ideas bring in lots of cash flow for the company. But there are also times where those genius ideas are shelved because no one has an interest in that patent. The ever changing cash flows prove to be difficult for decision making, especially when it comes to whether the company 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…show more content… According to the third theory, Tax Preference Theory, capital gains are preferred over dividends. Due to time value of money, a dollar paid in the future on taxes has a lower cost than a dollar paid on taxes in the present. Capital gains typically have better tax advantages than dividends which is why some investors prefer to invest in companies that minimize dividends.
Based on the scatter plot, I would have to say that Haveloche has chosen a variety of these different theories over the years since they have been paying dividends. When the company needed to reinvest the money back into the company, they dividend was lowered. When the company had plenty of extra cash lying around, the dividend payout increased. Haveloche has been paying a dividend since its initial IPO, but those dividends vary from year to year. One could argue that the dividend is guaranteed each year based on past history, but the investor does not have a clue as to how what that dividend will be based off of.
And if you take a look at the stock price from year to year, it widely fluctuates up and down. Investors in this do not know from year to year if the company’s patents are going to strike it rich or if they are just going to be shelved. It being an R&D company, it is a risky company, which investors know prior to taking the plunge with investing their hard earned money.