Mills Ltd., a manufacturer of various flour products wants to estimate its funding requirements for the coming financial year. In the current financial year the company achieved sales of R100 million on assets worth R1000 million and liabilities of R500m. It's resulting net profit margin was 10% with no dividend being paid as the company is in a high growth phase. All assets and liabilities are considered spontaneous and increase in line with sales. It is expected that sales will grow by 20% in the coming year. Assets are however only utilized up to 80% of total capacity and the spare capacity can be used first before new capacity is installed. Required: Determine the Rand value of the spare asset capacity.
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.
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