(Dividend Policy Analysis) Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc. operations.
|
2013 |
2012 |
2011 |
2010 |
2009 |
|
|
Sales revenue |
$20,000 |
$16,000 |
$14,000 |
$6,000 |
$4,000 |
|
Net income |
2,400 |
1,400 |
800 |
700 |
250 |
|
Average total assets |
22,000 |
19,000 |
11,500 |
4,200 |
3,000 |
|
Current assets |
8,000 |
6,000 |
3,000 |
1,200 |
1,000 |
|
Working capital |
3,600 |
3,200 |
1,200 |
500 |
400 |
|
Common shares: |
|||||
|
Number of shares |
2,000 |
2,000 |
2,000 |
20 |
20 |
|
Average market price |
$9 |
$6 |
$4 |
— |
— |
Instructions
(a) Suggest factors to be considered by the board of directors in establishing a dividend policy.
(b) Compute the rate of return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc.
(c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis.