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					                Analysis of Dividend Policy
Objective


Inputs needed




Output
                   Analysis of Dividend Policy
1. To compare how much a firm has returned to its stockholder historically (up to 10 years) with ho
2. To provide an assessment of project quality (ROE compared to cost of equity) and stock price pe
3. To provide forecasts of how much cash the firm will have available for stock buybacks in the fut
For historical analysis:
a. Net Income
b. Depreciation, amortization and other non-cash charges
c. Capital expenditures: Please include acquisitions as part of capital expenditures
d. Non-cash working capital changes
In entering these numbers, please make sure that you get the signs right (check the comment box on
e. Dividends: Only cash dividends should be shown here (ignore stock dividends)
f. Stock Buybacks: Include the cash flow associated with stock buybacks.
For project assessment and stock price performance analysis
a. Beta: You should really use an average beta over the historical period, but go ahead and use your
b. Book Value of Equity: To compute return on equity.
c. Return on the stock: This is the total return you would have made as an investor: It includes price
d. Riskfree rate: The one-year government security rate at the start of each year (use the T.Bill rate)
e. Return on Stock Market: This is the total return on the stock market each year
(You can get the last two from the worksheet that is part of this spreadsheet that reports historical d
For forecasts
a. Expected growth rates in net income, dividends, depreciation, capital expenditures and revenues
b. Working capital as a percent of revenues
c. Debt as a percent of reinvestment, looking forward. As a default, you can use your historical ave
Historical Analysis
1. FCFE and Cash Returned each year for the historical period
2. Returns on equity, the stock and your required return each year for the historical period
3. Averages of both over the entire period
Forecasts
1. Forecasted FCFE for next 5 years
2. Forecasted dividends for next 5 years
3. Cash available each year for stock buybacks for next 5 years.
rically (up to 10 years) with how much it could have returned.
st of equity) and stock price performance over the period.
 e for stock buybacks in the future




 expenditures

ght (check the comment box on each of these inputs)
ck dividends)


iod, but go ahead and use your current beta if you do not have this.

as an investor: It includes price appreciation + dividend yield each year
f each year (use the T.Bill rate)
et each year
adsheet that reports historical data on both)

ital expenditures and revenues

you can use your historical average.


r the historical period
Section 1: Inputs for estimating Dividends and FCFE
How many years of historical data do you have available?                  10         (number of years)
                                                                  Use less years, if you do not have the data.

Enter the following data for the years for which you have data (starting with earliest year and ending with the most recent year)
     Year       Net Income                      Capital Spending in Non-Cash WC Debt Issued
                               Depreciation & Amort           Chg            Net
       1         $1,385.00         $678.00          $1,586.00         ($1,470.00)       $15.00
       2         $1,567.00         $826.00          $1,850.00         $1,055.00        $993.00
       3          $552.00          $961.00          $3,657.00          ($886.00)       $482.00
       4         $1,244.00         $953.00          $1,317.00          $515.00         $837.00
       5          $856.00          $1,142.00         $795.00           $910.00         ($21.00)
       6          $393.00          $1,033.00         $629.00           $951.00           $6.00
       7         $1,818.00         $1,241.00         $971.00           ($514.00)       ($109.00)
       8          ($178.00)        $1,354.00        $1,391.00          $205.00         ($635.00)
       9         $1,120.00         $1,517.00        $2,874.00           $84.00         $118.00
      10         $2,309.00         $1,645.00        $1,236.00         ($2,627.00)      ($239.00)


Enter the dollar dividends paid and equity repurchases for each year of historical data (staring with earliest year): (Equity repurchases ar
     Year     Dividends (in $)Equity Repurchases (in $)
       1          $328.00          $156.00
       2          $343.00          $127.00
       3          $340.00          $109.00
       4          $340.00            $0.00
       5          $340.00            $0.00
       6          $342.00            $0.00
       7          $480.00          $718.00
       8          $557.00          $141.00
       9          $564.00          $1,397.00
      10          $537.00          $2,937.00


Section 2: Assessing Investment Quality and Stock Performance
The following section of the dividend policy analysis looks at the quality of your firm's investments and the risk-adju
you have a measure of excess returns (ROIC- Cost of capital) or a Jensen's alpha computed for your stock, you can
The last set of inputs to this analysis relate to project choice and performance:
Enter the beta for the equity of this firm:                  0.95


Enter the following data relating to performance (starting with earliest year): (Make sure that you update the riskfree rate and return on th
     Year         BV: Equity Returns on stock         T.Bill rate   Return on market
       1          $6,131.00           22.45%                1.66%      -21.97%
       2          $6,973.00           43.33%                1.03%       28.36%          These are 2002-2011 numbers for the US.
       3          $8,093.00           26.99%                1.23%       10.74%
       4          $8,056.00           -17.64%               3.01%       4.83%
       5          $8,983.00           25.20%                4.68%       15.61%
       6          $9,700.00           46.81%                4.64%       5.48%
       7          $9,898.00           51.64%                1.59%      -36.55%
       8          $13,502.00           -9.73%               0.14%       25.94%
       9          $12,953.00           -8.76%               0.13%       14.82%
      10          $12,316.00          20.20%                0.03%       2.07%


Section 3: Inputs for forecasting future dividends and FCFE
Use these inputs if you want to make projection of FCFE for the future
Expected growth in Revenues over next 5 years =                                 7.20%
Expected growth in Net Income over next 5 years =                               7.20%
Expected growth in capital expenditures in next 5 years =                       7.20%
Expected growth in depreciation in next 5 years =                               7.20%
Enter non-cash working capital as a percent of revenues                         8.13%
Enter revenues from most recent year =                                      $57,993
Enter net income from most recent year or normalized value =                 $2,309
Enter capital expenditures from most recent year or normalized value =       $1,236
Enter depreciation in most recent year =                                     $1,645
Enter dividends paid in the most recent year =                                  $537
Do you want to use the debt ratio from your historical analysis?          Yes
If yes, the debt ratio used will be                                          45.52%
If no, enter the debt to capital ratio to use in forecast                        25%


Expected growth in dividends                                 5%
ng with the most recent year)




h earliest year): (Equity repurchases are in the statement of cash flows)




m's investments and the risk-adjusted, market-adjusted performance of your stock over the period. If
computed for your stock, you can use those measures instead of the ones computed here.
update the riskfree rate and return on the market from the attached worksheet to reflect the time period for your data)




-2011 numbers for the US.
                                                           Dividend Policy                                                              26


                                                       Analysis of Past Dividends
                                   1           2           3                   4         5           6            7           8
Net Income                     $1,385.00   $1,567.00   $552.00          $1,244.00     $856.00     $393.00     $1,818.00   ($178.00)
- (Cap. Exp - Depr)            $908.00     $1,024.00   $2,696.00            $364.00   ($347.00)   ($404.00)   ($270.00)    $37.00
- ∂ Working Capital        ($1,470.00)     $1,055.00   ($886.00)            $515.00   $910.00     $951.00     ($514.00)    $205.00
+ Net Debt Issued               $15.00     $993.00     $482.00              $837.00   ($21.00)     $6.00      ($109.00)   ($635.00)
= Free CF to Equity            $1,962.00   $481.00     ($776.00)        $1,202.00     $272.00     ($148.00)   $2,493.00   ($1,055.00)



Dividends                      $328.00     $343.00     $340.00              $340.00   $340.00     $342.00     $480.00      $557.00
+ Equity Repurchases           $156.00     $127.00     $109.00                                                $718.00      $141.00
= Cash to Stockholders         $484.00     $470.00     $449.00              $340.00   $340.00     $342.00     $1,198.00    $698.00


Dividend Ratios
Payout Ratio                    23.68%      21.89%      61.59%              27.33%    39.72%      87.02%       26.40%     -312.92%
Cash Paid as % of FCFE          24.67%      97.71%      -57.86%             28.29%    125.00%     -231.08%     48.05%      -66.16%



Performance Ratios
1. Accounting Measure
ROE                             22.59%      22.47%      6.82%               15.44%     9.53%       4.05%       18.37%       -1.32%
Required rate of return         -20.78%     26.99%      10.27%               4.74%    15.07%       5.44%       -34.65%     24.65%
ROE - Cost of Equity            43.37%      -4.52%      -3.45%              10.70%     -5.54%      -1.39%      53.01%      -25.96%

2. Stock Performance Measure
Returns on stock                22.45%      43.33%      26.99%              -17.64%   25.20%      46.81%       51.64%       -9.73%
Required rate of return         -20.78%     26.99%      10.27%               4.74%    15.07%       5.44%       -34.65%     24.65%



                                                                  Page 26
                                                                   Dividend Policy                                                27



Jensen's alpha             43.23%            16.34%             16.72%             -22.38%   10.14%   41.37%   86.29%   -34.37%
Index                         1                 1                  1                  1         1        1        1         1




                                     Summary of calculations

                           Average     Standard Deviation      Maximum         Minimum
Free CF to Equity          $933.40         $1,854.48           $5,106.00      ($1,055.00)
Dividends                  $417.10          $103.49            $564.00             $328.00
Dividends+Repurchases      $975.60         $1,017.82           $3,474.00           $340.00


Dividend Payout Ratio      37.69%
Cash Paid as % of FCFE     104.52%


ROE                        11.45%
Return on Stock            20.05%
Required Return             4.78%
ROE - Required return       6.68%
Actual - Required Return   15.27%




                                                                         Page 27
                          Dividend Policy   28




    9           10
$1,120.00   $2,309.00
$1,357.00   ($409.00)
 $84.00     ($2,627.00)
$118.00     ($239.00)
($203.00)   $5,106.00



$564.00      $537.00
$1,397.00   $2,937.00
$1,961.00   $3,474.00




 50.36%      23.26%
-966.01%     68.04%




 8.65%       18.75%
 14.09%       1.96%
 -5.44%      16.78%


 -8.76%      20.20%
 14.09%       1.96%



                             Page 28
                   Dividend Policy   29



-22.85%   18.24%
    1        1




                      Page 29
                                                     FORECASTED FCFE AND DIVIDENDS
Debt Ratio used in forecasting FCFE =   45.52%

                                              Forecasted FCFE
                                           1              2        3         4         5
Net Income                              $2,475        $2,653    $2,845    $3,049    $3,269
- (Cap Ex - Deprec'n) (1 - DR)          ($239)         ($256)   ($275)    ($294)    ($315)
- Change in Working Capital (1 - DR)     $185           $198     $213      $228      $244
FCFE                                    $2,529        $2,711    $2,906    $3,116    $3,340
Expected Dividends                       $564           $592     $622      $653      $685
Cash available for stock buybacks       $1,965        $2,119    $2,285    $2,463    $2,655


Revenues                                $62,168     $66,645     $71,443   $76,587   $82,101
Non-cash WC                              $339        $364        $390      $418      $448
DIVIDENDS
Year    Stocks   T.Bills
1928    43.81%   3.08%
1929    -8.30%   3.16%
1930   -25.12%   4.55%
1931   -43.84%   2.31%
1932    -8.64%   1.07%
1933    49.98%   0.96%
1934    -1.19%   0.32%
1935    46.74%   0.18%
1936    31.94%   0.17%
1937   -35.34%   0.30%
1938    29.28%   0.08%
1939    -1.10%   0.04%
1940   -10.67%   0.03%
1941   -12.77%   0.08%
1942    19.17%   0.34%
1943    25.06%   0.38%
1944    19.03%   0.38%
1945    35.82%   0.38%
1946    -8.43%   0.38%
1947     5.20%   0.57%
1948     5.70%   1.02%
1949    18.30%   1.10%
1950    30.81%   1.17%
1951    23.68%   1.48%
1952    18.15%   1.67%
1953    -1.21%   1.89%
1954    52.56%   0.96%
1955    32.60%   1.66%
1956     7.44%   2.56%
1957   -10.46%   3.23%
1958    43.72%   1.78%
1959    12.06%   3.26%
1960     0.34%   3.05%
1961    26.64%   2.27%
1962    -8.81%   2.78%
1963    22.61%   3.11%
1964    16.42%   3.51%
1965    12.40%   3.90%
1966    -9.97%   4.84%
1967    23.80%   4.33%
1968    10.81%   5.26%
1969    -8.24%    6.56%
1970     3.56%    6.69%
1971    14.22%    4.54%
1972    18.76%    3.95%
1973   -14.31%    6.73%
1974   -25.90%    7.78%
1975    37.00%    5.99%
1976    23.83%    4.97%
1977    -6.98%    5.13%
1978     6.51%    6.93%
1979    18.52%    9.94%
1980    31.74%   11.22%
1981    -4.70%   14.30%
1982    20.42%   11.01%
1983    22.34%    8.45%
1984     6.15%    9.61%
1985    31.24%    7.49%
1986    18.49%    6.04%
1987     5.81%    5.72%
1988    16.54%    6.45%
1989    31.48%    8.11%
1990    -3.06%    7.55%
1991    30.23%    5.61%
1992     7.49%    3.41%
1993     9.97%    2.98%
1994     1.33%    3.99%
1995    37.20%    5.52%
1996    23.82%    5.02%
1997    31.86%    5.05%
1998    28.34%    4.73%
1999    20.89%    4.51%
2000    -9.03%    5.76%
2001   -11.85%    3.67%
2002   -21.97%    1.66%
2003    28.36%    1.03%
2004    10.74%    1.23%
2005     4.83%    3.01%
2006    15.61%    4.68%
2007     5.48%    4.64%
2008   -36.55%    1.59%
2009    25.94%    0.14%
2010    14.82%    0.13%
2011   2.07%   0.03%

				
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