Capital Structure and Dividend Policy [Instructor Name] Capital Structure and Dividend Policy Introduction For the purpose of this report, two companies have been chosen - Limited Brands Inc. and News Corporation. Limited Brand Inc…
News Corporation is one of the top television groups in the world. Its business includes the best broadcasting company of United States called Fox Broadcasting Company. News Corporation’s cable network programming segment produces and issues licenses for programming to be broadcast on satellite. In addition to this News Corporation is one of the best motion picture producers. Fox Filmed Entertainment is considered to be the market leader in the movie production and distribution (News Corporation, 2013). In this report, some of the strategic decisions made by the companies in the year 2012 and 2011, have been considered and their impact on profitability. Capital structure has also been discussed in detail as well as dividend policy (1)Business Decisions News Corporation In June 2012, the board of director of the New Corporation decided to operate with two specializes segments. One of the segments will focus on news, publishing and education and the other segment will focus on the media and entertainment. The company believes that they will be able to achieve the expected rate of growth with the application of this change. Return on assets measures which the profit in terms of total assets used by the business (Berman & Joe, 2008), for the quarter ended March 2012 was only 1.49% because the total profit was only $937 million and the total assets were $62,745 million. The profit was continuously declining and the company sustained loss of $1,553 million in the quarter ended June 2012. After this decision the profitability in both the quarter ended was improved. News Corporation enabled itself to achieve 3.56% returns on assets in the September quarter and this return further improved a bit in the last quarter and it reached to 3.79%. Market capitalization can be calculates by multiplying the number of outstanding share with the share price on a particular day (Francesco, 2007). The total number of outstanding shares is 1,584.5 million. Share price were increased from $19.71 per share to $25.51 per share in December 2012 which resulted in increased market capitalization. Market capitalization in March 2012 was $31,230.5 (1,584.5 million shares*$19.71) million as compare to the market capitalization of the $40,420 (1,584.5 million shares*$25.51) million in December 2012. News Corporation repurchased capital stock of $4.6 billion in the year ended June 2012. The company is planning to repurchase another $5 billion share from the market next year. This repurchase will definitely improve the profitability in the long. EPS will improve significantly together with ROCE. Since the capital employed will decrease by the heavy amount and there is no serious decline is expected in the profit. However, market capitalization will also decrease since the number of outstanding shares will decline. The company took initiative to make the growth rate faster. The major work was done on the Cable Network Programming. This proved to be the most important factor of the growth in 2011. Due to this growth the company was able to achieve growth of 22% in four quarters of the financial year 2011. This growth also resulted in higher earnings per share and high operating profit I every segment in 2011. Limited Brands The company repurchased shares amounting to $1.190 billion. Due to this repurchase the dividend per share was increased from $0.6 per share in 2009 to $3.8 per share in 2011. Earnings per share have also increased due to this reason. This repurchase has not ...
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There are several theories that explain the aspect of irrelevance of dividend policy to the rational investors. The rational investors are concerned with the maximization of their wealth which forms the basis of the company’s objective. In order to accomplish those objectives, the companies adopt different policies and strategies for implementation.
This means that the primary role of such a policy is to determine the proportion of the company’s funds, which should be paid to the shareholders and what should be set aside for investment in new opportunities. In order to determine this policy, managers of firms must consider the options that would lead to optimisation of the shareholders’ wealth.
Basic facilities like water, electricity, food and shelter should be sufficient. Real estates prices will increase when the land is in the center of the city, or in industrial areas, or in residential areas. Infrastructure of the city or town plays an important role because those are the basic amenities that an investor would look into, before buying the land.
The existing shareholders of the company received a mixture of new ordinary shares and redeemable "B" shares. Marks & Spencer also reduced its share capital by 17:21 - or 17 new ordinary shares for every 21 old ordinary shares. The "B" shares, on the other hand, are redeemable for cash plus interest in the future.
One of the best ways to enhance shareholders' value is to build a consistent dividend policy over the years that could create value addition to the Company and ensure shareholder loyalties by consolidating and building up its position in the turbulent high waters of competitive business operations
Weighted average cost of capital is a measure used to calculate the amount of debt that a firm holds against the amount of equity. However it’s much better to put it this way it’s a measure of the amount of debt that a firm should hold against the amount of equity.
It argues that the value of a share is worth the actual present value in terms of all the future dividends that a company will pay. This model is the most effective method for valuation because it places the values of shares on the real cash flows that the investors receive.
Dividend is the amount that a company pays annually or semi-annually to the shareholders out of its profit (Michaely and Roberts, 2012). However, there are certain guidelines which decide the payment of the earning to the shareholders, these set of guidelines is known as dividend policy.
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