Linear Technologies Essay examples

Debt to Equity ℎℎ ′ 9,771+1,885 Dividend Payout Inventory Turnover = 0.069 Working backwards from the income tax expense, we estimate income tax rate to be 34%. NOPAT is then Operating profit taxes, or 3,137*(1-0.34) = 0.319 Average

As we can see from Exhibit 1 Linear Technology has been paying dividend steadily since 1992. Thus the pay-out policy is a large part in dividends. Its first dividend is paid in 1992.

The dividend payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. This is well evident with Pepsi Co’s dividend payout ratio of 45.95% as compared to Coca-Cola’s 20.11%. A low dividend payout is always better as it leaves more room for the company to increase dividend payouts in the future while a high ratio means there is less room.

The repurchase program increases the shareholder’s value. This is because of a rise in the price of the shares of the original shareholders.

a) How many shares will the firm have to issue, assuming they issue the new shares at the current price per share?

- A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,200 and other assets of $10,800. Equity is worth $12,000. The firm has 750 shares of stock outstanding and net income of $775. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?

If BBBY were to use $400 million in excess cash and $636.3 million in borrowed funds to repurchase it's shares they would increase their basic earnings per share from 1.35 to 1.41 and their diluted earnings per share from 1.31 to 1.37. If BBBY were to use $400 million in excess cash, and borrow $1.27 billion to repurchase their shares, the increase of the basic earnings per share would only be 0.3 while the difference from zero debt to

Shareholder’s equity would be lower than that shown in 1982 ($318,000) because the company has to pay off interest and principal for many loans. There will be little money left for shareholder’s equity.

Answer: A firm has two choices with its free cash flow. It can decide to

Since firms incur the re-purchase option by offering $20 cash for each stock bought back, the number of outstanding shares will be reduced. The Earnings per share will increase leading to an increased stock price.

In Tysons Foods announcement date was on August 3, 2015. This is the date in which Tysons announce the details regarding an issue of debt or equity. Before the announcement date there were ten analysts who had forecasted Tysons Earnings per Share (EPS). They comprised an EPS range of $0.87 to $0.96 giving an average estimate of $0.921. Which is slightly higher than the actual EPS of $.800. Generating an EPS surplus of -.121 and a percentage change of -13.14%. Which was calculated by taking the actual EPS ($0.800) and subtracted from the average estimated EPS ($0.921), while the surplus percentage change resulted from dividing the EPS surplus by the average estimated EPS.

The number of shares outstanding will remain the same and thus, the only change in the equity side of the balance sheets for the next three years will be the change in the amount of retained earnings. This change will be equal to the net income of the company for last year because the company will not pay a dividend.

This is true since companies would be more likely to cut dividends when the market is doing poorly and pay dividends when the market is doing well, and by failing to maintain dividends payout the firm would send a bad signal to investors (Titman and Keown et al., 2011). It must also be noted that by not maintaining a stable dividend a stock price can decline by a greater amount than the price gains from the increase in dividends (Jiang and Koller, 2014). In the case of LT, the firm increased its dividend approximately US$0.0025 per share each quarter after their first dividend payout from Fiscal 1992 to Fiscal 1999 (Baker and Wagonfeld, 2004). The dividend payout ratio continued to grow steadily and by the last quarter of Fiscal 2000 dividends per share were increasing by an additional US$0.01 per share, per quarter (Baker and Wagonfeld, 2004). The company’s dividend payout in the third quarter of Fiscal 2003 was US$0.05, which increased in quarter 4 of Fiscal 2002 (Baker and Wagonfeld, 2004). In fiscal 2002, however, LT experienced its first significant drop in sales since the 1986 IPO where sales fell 47% and profits fell by 54% but it still continued increasing the dividend in order to maintain its reputation of profitability and positive cash flows to its investors (Baker and Wagonfeld, 2014). At the end of the third quarter of Fiscal 2003 its payout ratio reached approximately 28%, meaning that the firm

substantially below Linear’s record levels set in 2001. In addition, the technology industry was still

The EPS is the earnings available per share that is after meeting all expenses and tax to each shareholder but the dividends paid to the shareholders will not be deducted from the net income.