Conn Man’s Shops, a national clothing chain, had sales of $440 million last year. The business has a steady net profit margin of 8 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown. Balance Sheet End of Year (in $ millions) Assets Liabilities and Stockholders' Equity Cash $ 44 Accounts payable $ 66 Accounts receivable 65 Accrued expenses 42 Inventory 95 Other payables 46 Plant and equipment 148 Common stock 88 Retained earnings 110 Total assets $ 352 Total liabilities and stockholders' equity $ 352 The firm's marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of 10 percent is forecast for the company. All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember, the net profit margin is 8 percent.) *This includes fixed assets, since the firm is at full capacity. b. What would be the need for external financing if the net profit margin went up to 9.50 percent and the dividend payout ratio was increased to 65 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions, (e.g., $1,234,567).)
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Conn Man’s Shops, a national clothing chain, had sales of $440 million last year. The business has a steady net profit margin of 8 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown.
| Balance Sheet End of Year (in $ millions) |
|||||
| Assets | Liabilities and |
||||
| Cash | $ | 44 | Accounts payable | $ | 66 |
| 65 | Accrued expenses | 42 | |||
| Inventory | 95 | Other payables | 46 | ||
| Plant and equipment | 148 | Common stock | 88 | ||
| 110 | |||||
| Total assets | $ | 352 | Total liabilities and stockholders' equity | $ | 352 |
The firm's marketing staff has told the president that in the coming year there will be a large increase in the demand for overcoats and wool slacks. A sales increase of 10 percent is
All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember, the net profit margin is 8 percent.)
*This includes fixed assets, since the firm is at full capacity.
b. What would be the need for external financing if the net profit margin went up to 9.50 percent and the dividend payout ratio was increased to 65 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions, (e.g., $1,234,567).)
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