Dividend Policy Analysis
Response to the following problem:
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.
|
|
2015
|
2014
|
($000 omitted)
2013
|
2012
|
2011
|
|
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 outstanding (000)
|
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 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.