The following is an excerpt from the chief executive officer’s letter to the stock-holders that was included in the annual report of Best Corp.: ‘’It feels good to finish 2019 and be thankful that your company achieved
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.
- The following is an excerpt from the chief executive officer’s letter to the stock-holders that was included in the annual report of Best Corp.:
‘’It feels good to finish 2019 and be thankful that your company achieved its best year. I am sure that you are puzzled by my statement given the net loss we have reported in the income statement. Let me explain. Although our gross margin has declined from the last year’s because of competitive pressures, we have set a company record in terms of sales revenue. You know quite well how accounting income can be manipulated. We don’t play that game. We let cash flows tell our story. Also, we have efficiently managed our receivables and inventory with a considerable amount of decrease in accounts receivable and inventory accounts, compared with last year. Furthermore, we have taken advantage of all available credit from our suppliers . More importantly, I’m sure all of you are very pleased with the dividends that you have received this year. Let me end this letter by proudly inviting you to visit our new office building. Please remember that your top management team did not burden you with one dollar of debt to buy this building.’’
Required:
The outstanding balance of the loan given to Best Corp. is $900,000 on December 31, 2019(maturity of the loan is March, 2022). The CEO of Best Corp. has sent a loan proposal to Max Bank requesting renewal of the loan for one more year and an increase in the credit limit to $1,200,000.
Should the Max bank accept the offer or reject it?Please explain.
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