PROBLEM 2: JKL Corp. reported the following amounts in the shareholders' equity section of its December 31, 2015, statement of financial position: Preference shares, P10 par (100,000 shares authorized, 40,000 shares issued) P400,000 100,000 Ordinary shares, P5 par (50,000 shares authorized, 20,000 shares issued) Share premium - Ordinary shares Accumulated profits 192,000 1,200,000 L The following transactions occurred during 2016: a. At the beginning of 2016, the company paid the annual 2015 P1 per share dividend on preference shares and PO.50 per share dividend on ordinary shares. These dividends had been declared on December 1, 2015.Further investigations revealed that no entry has been made to account for the declaration of the said dividends. b. On February 13, the company purchased 4,000 shares of its own outstanding ordinary shares for P80,000. c. On March 30, the company declared and issued ordinary shares split-up (1 is to 2). d. On June 19, the company reissued 2,800 treasury shares for an equipment with a fair value at P50,000. e. On August 1, the company issued 10,000 shares of preference shares at P15 per share. f. On September 30, the company declared a 10% stock dividend on the outstanding ordinary shares when the stock is selling for P6 per share. The share dividends were subsequently issued on October 11. g. December 1, the company declared the annual 2016 P1 dividend on preference shares and the PO.25 per share dividend on ordinary shares. These dividends are payable at the beginning of 2017. h. The company registered a net income for 2016 at P940,000.
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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