Stock Repurchases versus Cash Dividends 3.
Business 3 pages, words 1. The financial strength of Deanna Perez Fashions in comparison to the industry can be found by a relative comparison of its Current and TIE ratios to the industry averages.
Both of these averages show the lack of their ability, relative to the industry to cover expenses. This shows that for DPF, relative to the industry they have less leeway in the amount operating income can decline before the firm is unable to meet the annual interest costs.
DPF has been getting weaker in recent years. Their Current and TIE ratios were, inat par with the industry. The corporation will be forced to hold onto retained earnings, instead of paying them out, in order to protect themselves from bankruptcy costs and legal action.
Do investors prefer dividends or do they prefer companies to retain earnings? This is a question that is very much unresolved. It is very hard to understand dividends. Three explanations keep coming up. The first one is that dividends are irrelevant. In other words investors only care about total returns.
No significant relationship between dividend payments and cash flow, market to book value and debt equity ratio The second argument is that dividends are taxed at higher rates then capital gains and therefore cannot be viewed in favor over capital gains.
This could suggest that companies that do pay a dividend have a lower stock price. The third explanation is that dividends may provide investors with an idea about a firm?
Large dividend increases can cause the stock price to go up, while dividend cuts can send a stock price down. So if investors are using the changes in dividend policies as indications about upcoming corporate ability to pay the dividend and its continued prospects, this price fluctuation says nothing about preferences for dividends and capital gains.
Earnings over the last 15 years have on a average been growing at a rate of 6. What this means is that even though EPS growth was not spectacular, it was consistently improving at about the same rate as the industry and investors have been trading the stock at what is a good premium to the rest of the industry, it would appear that shareholders are satisfied with the dividend policy in its current state.
Their stock has on average been returning If the company were to decide to reduce the dividend it could very well send a signal to investors that the company will not be earning as much as needed to pay a higher dividend.
It could also be seen by investors that the company has some good NPV projects in the pipeline and it would be beneficial to reduce the payout ratio, but it is very difficult to say how the investors will react to this and it is more likely to be negative than positive in accordance with the first view.
If the company is to purchase stock back this could be considered a good signal by investors that management thinks the stock is cheap.
However, in this case DFP is considered a take over target and if management buys back stock, it would signal to investors that the company is trying to avoid a take over which would maximize shareholders wealth and would be a very negative signal that management is not working in the best interests of the shareholders.
Like incumbents in every nation, they use Industry LeadersTotal Industry Earnings for Due to asymmetry, the stockholders will not know exactly what management intent is in all aspects of the business. The clientele effect of dividend policy is very important.
A firm should try and be aware of what type investors own their stock. If the majority of the stockholders are retired individuals that are in very low tax brackets and need that income for living expenses then they will want the company to use as high of a payout ratio as possible.
On the other hand if most of the shareholders are those that are in their peak earnings years then these clientele would rather the company use the earnings for reinvestment These investors would have to pay ordinary tax income on the dividends and then reinvest so they prefer capital gains.
What this all means as that companies must understand their shareholders needs and be sympathetic to them, they are the owners. Yes DFP should consider agency costs when considering dividend policy.
Investors have to worry about managements? Because of asymmetry shareholders will not know for sure if management is investing that money into positive NPV projects as they should, or if they are spending retained earnings in as irresponsible manner, such as purchasing too many corporate jets, ect.Case study discussion PDF-ebook in english Seminar paper from the year in the subject Business economics - Investment and Finance, grade: , Maastricht University (SBE), course: intermediate financial management (IFM), language.
Dividend Policy DEANNA PEREZ FASHIONS, INC. Directed As a young adult in her mid-twenties, Deanna Perez emigrated from Spain with her family to New York City in the early s. Deanna was artistically inclined and loved women’s fashions. iridis-photo-restoration.com financial strength of Deanna Perez Fashions in comparison to the industry can be found by a relative comparison of its Current and TIE ratios to the.
Financial Case of Deanna Perez Fashions Inc iridis-photo-restoration.com financial strength of Deanna Perez Fashions in comparison to the industry can be found by a relative comparison of its Current and TIE ratios to the indu.
Seminar paper from the year in the subject Business economics - Investment and Finance, grade: , Maastricht University (SBE), course: intermediate financial management (IFM), language: English, abstract: Today, DPF is in a weaker situation than the industry .
Passed a study of the financial case of deanna perez fashions inc away on September Wayne Peter Bourgeois.