The ratio refers to the amount of total net income of a company relative to the dividends paid to shareholders. The dividend payout ratio for Nestlé Company as shown in Graph is quite stable. Nestlé Company is paying a constant percentage of net income in the form of dividend to their shareholders each year under constant dividend payout ratio policy. As the percentage of earnings paid out each year is fixed, it implies that the dividend payout ratio will become more stable. Since the dividend payout ratio in Nestlé Company is over 100 percent, it can be said that Nestlé Company pay more money to its shareholders rather than keep the earnings for other financing purpose.
Q2. Three approaches to company valuation 1. Dividend growth model 2. Price/ Earning model 3. Free cash flow The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value. In other words, it is used to value stocks based on the net present value of the future dividends.
Analysis of Ratios Liquidity Ratios Current Ratio= CA/CL Current ratio is a financial ratio that evaluates if a business has an adequate amount of resources to cover its debt over the next business cycle (typically 12 months). It does so by relating company's current assets to its current liabilities. Standard current ratio values differ from industry to industry. The higher this ratio, the more proficient the company is to pay its debt. A problem with the current ratio is that it accounts for inventory, which is not as liquid as other current asset accounts, and may lead to a disingenuous analysis.
Ratio Analysis The purpose of this financial analysis is to identify several aspects of the company’s financing behavior. With this ratio analysis it is to know the degree of liquidity of the company from a management perspective, how they impact the firm’s ability to leverage new distinctive competences. The ratios that will be presented below are used in comparision to other companies in your industry and internal benchmarks. Profitability Ratios. These ratios come from your company’s income statement, measuring the profitability of the shareholder or company owner, having a higher value relative to a competitor's ratio or the same ratio from a previous period
2.3.4 Return on Assets The return on assets ratio, often called the return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period. Since company assets' sole purpose is to generate revenues and produce profits, this ratio helps both management and investors see how well the company can convert its investments in assets into profits. For the analysis, the return on assets ratio measures how effectively a company can turn earns a return on its investment in assets. In other words, ROA shows how
If part of the earnings is retained, opportunity cost is incurred, stockholders may had received those earnings as dividends and then invested that money in stocks, bonds, real estate and others. d. (3) Harry Davis’ estimated cost of equity (rs): We have, rRF = risk-free rate RPM = market risk premium b = beta coefficient rs = rRF + (RPM)bi e. (1) Estimated cost of equity using discounted cash flow (DCF) approach: We have, = = = = 13.8%. e. (2) Another method for estimating growth rate: Another method for estimating the growth rate is to use the retention growth model: g = (1 - Payout Ratio) ROE In This is consistent with the 5% rate given earlier. e. (3) DCF method could be applied if the growth rate were not
If the situations or the facts is happen, Intel will evaluated the recoverability by comparing the estimated undiscounted net cash flows associated with the related asset or group of assets over their balance useful lives against recoverability their respective carrying amount of the assets. If an assets found the useful life is shorter than its originally estimated, Intel will increase the rate of the amortization rates to amortize the remaining carrying value over the new useful life. Intel doing the annual impairment in the last quarter of every year for the undecided lived intangible assets or more regularly if indicators of potential impairment exist, to determine whether it is more readily than the carrying value of the assets may not be recoverable. Intel will performed the quantitative impairment test to compare the fair value of the indefinite-lived intangible asset with its carrying value if necessary. Identified intangible assets is the sum of the carrying amounts of all intangible assets, not include goodwill, as at the balance sheet date, net of accumulated amortization and impairment charges.
Lonmin PLC’s percentage return on average assets (ROA) measures how effectively the average assets of a company are utilised to generate income or how profitable a company is relative to its total assets. This ratio illustrates how well management is using the company's total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage. Lonmin PLC’s percentage return on average assets followed a similar pattern as their percentage return on average equity over the 5 year period beginning with a negative return in 2009, gradually increasing until 2012 where there is a significant fall and a recovery in 2013.
Capital Turnover Ratios : This ratio shows the efficiency of capital employed in the business by computing how many times capital employed is turned over in a stated period . The higher the ratio , the greater are the profits , lower the ratio means sufficient sales are not being made and profits are lower . The trend shows that the firm has been able to maximise sales by turning capital over and over which lead to increased sales .The Capital Turnover ratio has increased from 27.66% to 33.35% recording the highest in FY2015-16 due to increased sales which increased by 5.4% Stock Turnover Ratio : It denotes the speed at which inventory will be converted into sales . This ratio denotes the speed at which the inventory will be converted into sales, thereby contributing for the profits of the concern. If the ratio was higher then it would have indicated that finished stock is rapidly turned over.
Statement of financial position helps users of financial statements to assess the financial soundness of an entity in terms of liquidity risk, financial risk, credit risk and business risk. The amounts reported on the statement of financial position are the amounts as of the final moment of an accounting period. INCOME STATEMENT: which is also called a profit and loss account is a financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenue and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically a year.