22.01.2018
The profit of the enterprise can be used to replenish the authorized capital, develop production, pay bonuses to employees and other purposes provided for by the charter. In a joint-stock company, it can be distributed to pay dividends to shareholders.
factors associated with objective limitations:-
the level of taxation of dividends; -
the level of taxation of property of enterprises; -
achieved effect of financial leverage; -
the actual amount of profit received and the level of profitability equity; 4)
In addition, future dividends are depreciated to the extent that they do not materially change the valuation of the shares. The current value of dividends during a period of high growth is shown in the table. The present values of these dividends are then determined by discounting each dividend at the required rate of return compared to the number of compounding periods.
The formula for calculating the present value factor for discounting each dividend is. Adding the present value of dividends for the first four years to the present value of the final value gives an estimate of the value of the shares. Significant discrepancy between the values obtained from the constant growth model and the two-stage model. Let's now take a closer look at the two different models to try to understand the elements that affect scores.
other factors: -
One of the difficult tasks of an analyst is to determine the level of profit of an enterprise. Earnings can be expressed as earnings per share (Earning per Share - EPS), which is needed when evaluating the value of ordinary shares, evaluating dividends and the possibility of paying them, as well as for other purposes.
Our examples used the historical long-term treasury rate, but the current long-term treasury rate of 7% is much lower than the historical average. Generally, a higher risk-free rate increases the required rate of return for a stock, resulting in a lower stock valuation.
In addition, beta plays a key role in valuation as it also affects the required rate of return. Companies with more high stakes will have higher required rates of return and lower valuations, and companies with lower bets will have lower required rates of return and higher valuations.
Earnings per share is the most common indicator of profitability and is often taken into account in the process of making a decision to buy / sell shares in the stock market. When analyzing financial condition a lot of attention is always paid to earnings per share. This ratio is calculated by dividing the sum net profit, which is at the disposal of the owners of ordinary shares, by the average number of ordinary shares in circulation for the reporting period.
It is difficult to accurately determine the required rate of return. The methodology used in these examples provides a good formula for estimating the required rate of return, but there are other approaches. A full discussion of the calculation of required rates of return is beyond the scope of this article.
A number of assumptions are made in the dividend discount model. First, the alleged dividend is considered paid by the company. If a dividend is not paid, a profit valuation model may be used. This formula requires an estimate of the long-term payout ratio, which means that there is a reasonable expectation that the company will start paying dividends in the future. If the expected rate of return or payout is zero, or if future intentions to start paying dividends cannot be reasonably predicted, the company cannot be valued using any formula.
Much attention is paid to the earnings per share indicator by the company's management and its shareholders. It is on the basis of the calculation of the EPS indicator that, to a large extent, the evaluation of shares takes place. This indicator is used in strategic planning to formulate specific goals and objectives. Typically, the researcher does not have to calculate this ratio because companies publish it in their annual reports and make quarterly calculations.
Second, the dividend discount model works best if earnings and dividends grow at the same rate, so that the payout ratio remains stable. A company that increases its dividend faster than its earnings will eventually fail to pay its full dividend. On the other hand, a company that increases dividends much more slowly than earnings will accumulate too much money and cause the dividend discount model to underestimate its value.
As a rule, smaller companies in the high growth phase do not pay dividends, as most of the income is saved to finance expansion. Even some mature companies do not pay dividends and prefer to return cash to investors through share repurchases. Of course, these companies also cannot be valued using the discounted discount model.
Calculation of earnings per share (P) is made according to the formula:
PE - DPA _ Lsh, (8.9)
PE - the amount of net profit received in the analyzed period, UAH;
DPA - the amount of dividends paid in the analyzed period for preferred shares, UAH;
CPA - the average annual number of ordinary shares in circulation, pieces;
PPA - profit for owners of ordinary shares, UAH.
This indicator characterizes investment attractiveness firms - the more net profit falls on the hryvnia of investments, the more likely it is to attract investments through an additional issue of shares.
Net earnings per share may be converted to a cash basis. In this case, it is called the indicator of receipt of money per share. This is an approximate indicator, and it is calculated to determine the ability of the company to pay dividends in cash as a result of the main activity of the enterprise. An attempt is made to determine the cash flow per share. Added to net profit are the amounts of non-cash write-offs, such as depreciation of material and intangible assets because these accounting transactions do not represent actual cash flows. Thus, adding back these accounting write-offs, we roughly determine which money income generates profits derived from the core business of the company.
Usage this indicator can often mislead the analyst, since the calculation cash flow is done according to the above assumptions very approximately. In accordance with the above assumptions, the calculation of the cash flow per share is made according to the formula:
P _ PPA + Am, (8.10)
where PDA is the indicator of cash receipts per share; PPA - profit for owners of ordinary shares, UAH;
CPA - the number of ordinary shares, pieces.
N _ YES; N _ YES
DN SAN ’ (8.11) and DF SAR ’ (8.12)
where NDN is the nominal rate of the dividend;
NDF - the actual rate of the dividend;
YES - dividend per share;
SAN - par value of one share;
SAR is the market value of one share.
The first indicator characterizes the investment attractiveness of the enterprise in the primary market, and the second - in the secondary securities market. Both of these indicators are related to the total return of the share, which is calculated taking into account the market value and the exchange rate difference that the owner will receive when selling the share.
The growth of the share price is an important characteristic of the enterprise's respectability in the eyes of the stock market. In addition to receiving current profit, investors usually expect an increase in the value of a company's common stock on the stock market. The determining factor in the growth of the share price is the additional economic value, i.e., the provision in the long term of more significant cash flows compared to investments due to the production, investment and financial activities of the enterprise. When analyzing the performance of a given company, changes in the price of its shares will be compared with general trends in the securities market, with changes in the prices of shares of companies in this industry or a selected group of companies that are used for comparison. The change in the market price of a share characterizes the so-called capitalized income of the company, which is calculated by the formula:
KD _ SAR SAR, (8.13)
where CA is the company's capitalized income, UAH;
SNAR - market price shares at the beginning of the year, UAH;
SCAR - market price of a share at the end of the year, UAH.
Dividend income is one of the components of the income of an investor - the owner of ordinary shares. To determine dividend income, the amount of annual dividends is compared with the current share price at the beginning of the year or average price stock. The announcement of dividends per share is made by the board of directors of the company, and this is given great attention, since the declared and expected dividends on the shares of this company affect, among other factors, the price of these shares on the stock market. Dividends are usually paid in cash but quite often in the form of shares. When paying dividends with shares, there is no cash flow, additional shares are issued and transferred to each shareholder of this company. If cash dividends are paid, they are declared in absolute terms, for example, UAH 5.30 per share. To calculate the dividend income, we will use the formula:
where DD - dividend income;
DK - the amount of dividends for the year;
Сн is the market price of a share at the beginning of the year, UAH.
This ratio characterizes the profit of investors from dividends. However, when analyzing dividend income and comparing this indicator with other companies, one should not forget that companies pursue different dividend policies, and total amount The shareholder's income is made up of dividends and the change in the market value of the share.
Total return on common stock. The total return to shareholders of a company is determined by a combination of two main components: the increase (or decrease) in the share price and the dividends received in cash during the relevant time period chosen for analysis. Since only part of the profit belonging to shareholders is paid to them in the form of dividends, it is the amount of actually received dividends that matters to them, and, as already noted, the change in the share price, and not the declared amount of the company's profit per share. The total return on investing money in the equity capital of an enterprise is thus calculated using the following formula:
Sk -Sn D DV \u003d AR AR + DK \u003d KD + DD,
where DV - profitability of investments in own capital; DK - the amount of dividends for the year;
CHP - market price of a share at the beginning of the year, UAH;
AR - market price of a share at the end of the year, UAH.
Ratio "price/earnings per share". The owners of the company and its management often use this ratio. It is also called "profit multiple" and shows how adequately the market evaluates the results of the company's activities and its prospects. The calculation is very simple: the current market price of ordinary shares is divided by the most recent available indicator - earnings per share. In the practice of developed stock markets, it is customary to use the abbreviation for this indicator "PE" (English - "Price / EPS"). The indicator is calculated according to the formula:
CCP _ , (8.16)
where CPI is the “price/earnings per share” ratio;
SAR - the average value of the market price of a share for the analyzed period, UAH;
This indicator is always evaluated in case of a possible acquisition of the company. Profit multiples vary significantly depending on the industry and type of company. In fact, this ratio shows how the market as a whole evaluates the risks associated with a given industry or company in relation to past and future profits. As usual, a comparative analysis is carried out, and a multiple of profit for a given company is compared with the average market coefficient and with data on the group of companies selected for comparison.
To characterize the effectiveness of the dividend policy chosen by the enterprise, the dividend payout ratio is used, which is calculated using the following formula:
K _ YES, (8.17)
where KDV is the dividend payout ratio;
NCA - net profit per ordinary share, UAH.
The payout ratio is used to characterize the company's dividend policy and characterizes the share of profit paid to shareholders in cash in a given year.
The larger the share of net profit paid out as current income to shareholders, the lower the net profit capitalization rate becomes. A reduction in net income as a source of self-financing may eventually slow down internal growth rates, limit the growth rate of the company's revenue and reduce the ability to attract loans.
The indicator, as a rule, should be less than one: KDV If we consider this indicator for a number of years, then we can assess the trends in the policy of the board of directors: the prevailing desire to reinvest profits for the development of the company or pay a large share of profits to shareholders.
It is difficult to say which is better, but the analysis of this ratio helps to determine the "style" of the company's activities. The trend is that fast growing and developing companies usually pay out a smaller share of their profits, they tend to reinvest their profits to ensure further growth. Companies with stable growth rates or average growth rates usually pay out a large share of the profits.
The owners of the company are always interested in the extent to which the dividends paid to them are secured by profit and cash receipts. They are also concerned about the extent to which their company's leverage, and the associated interest and debt repayments, will affect management's ability to deliver sustainable earnings growth and pay dividends in line with the company's owners' expectations.
For a more detailed characterization of the position of the enterprise issuing shares in the securities market, indicators are used that correlate various values with the market price of the share, which makes it possible to assess the position of the enterprise relative to other participants in the securities market.
The stability of the company in the stock market is determined using the share quotation coefficient, which shows the ratio of the market value of the share and the nominal (accounting) value and is calculated by the formula:
KKA - S“. (8.18)
where KKA - share quotation ratio;
SAR - market price of shares, UAH;
SAN - nominal share price, UAH.
This ratio characterizes the market value of the company's capital in dynamics. It reflects the sensitivity of the stock market in relation to this company, its reaction to the prospects for the development of the enterprise.
The share price indicator is calculated using the following formula:
CA - CA^ , (8.19)
where TA is the share price, UAH;
SAR - market price of a share, UAH;
ПЧА - net profit per ordinary share, UAH.
This indicator reflects the prospective dynamics of the company's position in the stock market: a higher sale price of the company's shares (with the same actual profit) characterizes the attractiveness of the shares, since investors hope to receive more profit in the future, as well as the conditional payback period of its current value. When analyzing the share price indicator, it is necessary first of all to pay attention to its dynamics over a number of periods and compare it with the dynamics of changes in profitability. A positive trend is considered to be the outpacing of the growth rate of the share price over the growth rate of profitability.
The dividend yield of a share characterizes the current profitability of the capital invested in a share:
SAR - market price of a share, UAH.
The income of shareholders of the enterprise consists of two components: -
current dividends; -
the difference between the market and par value of a share.
It should be noted that receiving very high dividends on shares, along with a significant increase in their market value, is a practically uncommon phenomenon. Therefore, the owner of corporate rights should not count on both positive aspects at once.
Thus, the indicator of change in the wealth of shareholders has the following form:
PBA \u003d YES + PD, (8.21)
where PBA - changes in the welfare of shareholders;
YES - the amount of dividend paid per share, UAH;
IN explanatory note the following information is disclosed:-
an event that prompted an additional issue of ordinary shares; -
date of issue of additional ordinary shares; -
the main conditions for issuing additional ordinary shares; -
the number of additional ordinary shares issued; - the amount of funds received from the placement additional shares(when shareholders exercise their rights to acquire additional ordinary shares with their partial payment). Table 8.8 Calculation of diluted earnings per share Name Numerator Denominator Earnings per share 64640: 3242 - Exercise
contracts 64640 + 0 = 64640 3232 + 10 = 3242 - 19.94, has a dilutive effect
13.09, has a diluting effect
144640: 10242 = Convertible 68640 + 76000 = 5242 + 5000 = = 14.12, has bonds = 144640 = 10242 anti-dilutive
effect Diluted earnings per share 13.09 If after reporting date but before the signing date financial statements is the placement of ordinary shares on the appropriate terms, then the values of basic and diluted earnings per share for the reporting and previous financial statements presented in the financial statements reporting periods are also subject to appropriate adjustments.
Information about events that occurred after the reporting date should be disclosed in an explanatory note.
If, after the reporting date, there have been transactions with ordinary shares, convertible securities that are significant to users of financial statements, information about these transactions is disclosed in the explanatory note. Such transactions include: Issues of ordinary shares of significant volume; significant in terms of the volume of transactions for the repurchase of ordinary shares by the company;
SHARES OBJECTIVE
Task 1
Dividend -
Par value of a share pH
N Npr, the rest are ordinary Nb
Book value stock Rb
Market value of a share pp
Dividend rate per share - i
Amount of dividends I
Solution
We distribute the remaining profit for distribution among holders of ordinary shares
Iob \u003d 950,000 rubles / 400,000 pieces \u003d 2.375 rubles per share
Let's define profitability:
For preferred shares, it is determined by the dividend rate - 5%
For ordinary ones it will be: i vol \u003d Iob / Rn \u003d 2.375 rubles / 10 rubles \u003d 0.2375 or 23.75%
Answer:
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Task 2
The investor purchased for 400,000 rubles. a block of shares (100,000 pcs) in JSC with a par value of 300,000 rubles. (3 rubles per share) For each share of the package, dividends were paid in the first year in the amount of 5% per annum, in the second year in the amount of 6% per annum. After 2 years, the package was sold for 450,000 rubles.
Determine the nominal and market current and final returns on one share.
Guidelines
The return on a share is the ratio of the income that a given share brings to the owner with the value of this share. Share income is divided into: current(dividends determined annually) and final(associated with the change in the market value of the share and are determined at the time of the sale of the share by the owner as the difference between the purchase price and the sale price, plus any dividends received).
Yield nominal Rн - the ratio of income that this share brings to the owner with nominal the cost of this share., it is possible to estimate the current Rn / t according to current income annually and the final Rn / k according to final income.
Yield market R is the ratio of income that this share brings to the owner with market the value of this share, it is possible to estimate the current Rt by current income annually and the final Rk by final income.
Solution
Calculate current income (dividends)
In the first year: I1 \u003d i1 * Rn \u003d 5% * 300,000 \u003d 0.05 * 300,000 \u003d 15,000 rubles
In the second year: I2 \u003d i2 * Рn \u003d 6% * 300,000 \u003d 0.06 * 300,000 \u003d 18,000 rubles
Current nominal yield is equal to the dividend rate,
respectively 5% in the first year and 6% in the second year.
Current market return:
Rt 1 \u003d 15,000 rubles / 400,000 rubles \u003d 0.0375 3.75%
Rt 2 \u003d 18,000 rubles / 400,000 rubles \u003d 0.045 4.5%
Calculate final income
15 000 rub. + 18,000 rubles + (450,000 rubles - 400,000 rubles) = 82,000 rubles
Final nominal yield
Rk / n \u003d 82,000 rubles / (300,000 rubles * 2 years) \u003d 0.137 or 13.67%
End Market Return:
Rk / n \u003d 82,000 rubles / (400,000 rubles * 2 years) \u003d 0.1025 or 10.25%
Answer
DEPRECATION TASK
Task
Determine the depreciation amounts in the first month of the first year of service for a fixed asset with a total initial cost of 12,000,000 rubles and a period beneficial use 10 years (fifth depreciation group).
Analyze the calculated rates and depreciation amounts for all possible methods and name the method that gives maximum amount depreciation.
Guidelines
Line method(according to PBU 6/01)
The method provides for the calculation of an equal rate and amount of depreciation in any period of operation of the facility. The calculation is made through indicators per year:
annual rate depreciation: N= 1/SPI * 100%,
Annual amount A = (N/100%) * PPP
Per month norm n=N/12
In a month, the amount a \u003d A / 12
SPI \u003d 10 years, which means the norm per year N \u003d (1/10) * 100% \u003d 10% or 0.1.
The annual depreciation amount will be equal to A \u003d 0.1 * 12,000,000 rubles. = 1,200,000 rubles.
Per month norm n=0.1/12 = 0,008333 (0,8333%)
Per month amount a =1 200 000/12= 100 000 rubles
Decreasing balance method (according to PBU 6/01)
The method provides for the accrual of decreasing annual depreciation amounts at the same annual depreciation rate. The amount of depreciation is maximum in the first year, then the amounts decrease every year, due to the use of the residual value of the fixed asset in the calculation. The calculation is made through indicators per year:
To maximize the amount of depreciation, we choose the maximum allowable coefficient - K = 3.
Annual depreciation rate: N= C/SPI * 100%,
Annual amount A \u003d (N / 100%) * OS
Per month norm n=N/12
In a month, the amount a \u003d A / 12
SPI \u003d 10 years, which means the norm per year N \u003d (3/10) * 100% \u003d 30% or 0.3.
The annual depreciation amount will be equal to A \u003d 0.3 * 12,000,000 rubles. = 3,600,000 rubles.
(for the first year, the residual value of fixed assets is equal to the full original cost!!!)
Per month norm n=0.3/12 = 0,025 (2,5%)
Per month amount a =3 600 000/12= 300 000 rubles
The method of the sum of numbers of years of useful life (according to RAS 6/01)
The method provides for the accrual of decreasing annual depreciation amounts at decreasing annual rates. The amount of depreciation is maximum in the first year, then the amounts decrease every year, due to the decrease in the depreciation rate of the fixed asset from year to year. The calculation is made through indicators per year:
Cumulative number for 10 years: 1+2+3+4+5+6+7+8+9+10=55
Annual depreciation rate for the first year of service N=10/55=0.1818=18.18%
Annual amount A = N * PPP
Per month norm n=N/12
In a month, the amount a \u003d A / 12
The annual depreciation amount will be equal to A \u003d 10/55 * 12,000,000 rubles. = 2,181,818 rubles.
Per month n=(10/55)/12 = 0,01515 (1,515%)
Per month amount a =2 181 818/12= 181 818 rubles
The write-off method in proportion to the volume of products (works) cannot be applied, since the useful life is set not in the volume of products, but in years.
5. Linear method (for tax accounting)
The method provides for the calculation of an equal rate and amount of depreciation in any period of operation of the facility. The calculation is made through indicators per month:
Per month norm K=1/n * 100%
Where n SPI (useful life) expressed in months!!!
Amount A = (K / 100%) * PPP per month
SPI \u003d 10 years, which means the norm per month K \u003d (1 / (10 * 12)) * 100% \u003d 0.833% or 0,00833.
The depreciation amount per month is A = 0.00833 * 12,000,000 rubles. = 100 000 rub.
6. Nonlinear method (for tax accounting)
The method provides for the accrual of decreasing depreciation amounts at the same depreciation rate per month. The depreciation amount is maximum in the first month, then the amounts decrease every month, due to the use of the residual value of the fixed asset in the calculation. The calculation is made through indicators per month:
The depreciation rate is established by regulations (Article 259.2 paragraph 5 tax code RF). For the fifth depreciation group(see task) it is 2,7% (0,027) per month.
Amount A = (K / 100%) * OS per month
The amount of depreciation per month is A \u003d 0.027 * 12,000,000 rubles. = 324 000 rub.
Let's summarize the results in a table:
Task
JSC "Spektr" has an enterprise for the production of insulation from basalt fiber: stitched mats, panels. The company plans to implement in 2014 investment project launching new products from the same raw materials (pipe insulation sections).
Design production volume 456,000 tons of insulation per year (sales plan)
This project will require the purchase of special equipment:
machines - total cost(including delivery and installation) 640 thousand rubles, useful life 12 years.
Standard time for day equipment: 0.17 h/t
Operating mode of the enterprise: 2 shifts of 8 hours 258 working days a year
Equipment planned downtime ratio 4%
It is assumed that the design loading of equipment is at the level of about 80%
Guidelines
IN this case the production capacity of the purchased equipment is set by the indicator "norm of time" - this is the time in hours that will be spent on processing 1 ton of raw materials with one machine.
Therefore, we use the method of calculating the production capacity according to the norm of time (Nvr):
Fpol - a useful working time fund of one machine per year, calculated in hours according to the number of working days of the enterprise, that is, minus weekends and holidays from calendar days, based on the total number of hours of work during the normal number of shifts per day, minus planned downtime equipment:
Fpol \u003d 258 days * 2 shifts * 8 hours * (100% -4%) \u003d 4182 hours * 0.96 \u003d 3962.88 hours
Thus, we have obtained that each machine in the projected production for the year with optimal use(full load) can process and issue 23311.0588 tons finished products.
However, the full load of equipment in production during the year is a rather complicated and practically impossible situation (equipment breakdowns, poor organization of work, human factor, for example, absenteeism), therefore it is considered normal if the average load is maintained at 80%, which is included in the project according to the conditions of the problem. We calculate the planned output of products by one machine when it is loaded in terms of power by 80%.
VPf - actually manufactured products, pieces, tons, etc.;
Мсг - average annual production capacity, units, tons, etc.
Thus, the actual output of one machine per year with an intensive load factor of 80%:
VPf \u003d Kint * Msr \u003d 0.8 * 23311.0588 tons \u003d 18648.84704 tons
The design volume of production is 456,000 tons, that is, to fulfill the production plan, we need N machines:
N = 456000 tons / 18648.84704 tons = 24.4519 machines.
We can only buy an integer number of machines, so we need to round the resulting number. In this case, it is necessary to make an economically sound management decision, which requires Additional Information about the project.
For example, if we are constrained in financial resources, then we acquire the necessary minimum, that is, 24 machines, and then in order to fulfill the production plan, it will be necessary to provide a load slightly above the planned level of 80%.
If financial resources are available to us and the project involves further development 25 machines can be purchased in terms of activity volumes.
Suppose it is decided to purchase 25 machines, then the investment will be:
640 rubles * 25 machines = 16,000,000 rubles.
PROBLEM FOR REGULATION
Guidelines
The working capital ratio for inventories shows the cost of the optimal inventory for this species raw materials.
Rationing (calculation of the standard) production stocks is carried out by multiplying the planned average daily consumption for this element (Рav / day in rubles, which is determined by production volumes) by the stock rate (Nz in days), calculated based on the planned purchase mode of this element and other types of planned stocks:
The stock rate is determined by summing the stock days for each of the planned stock types:
· current stock designed to ensure production material resources between two successive deliveries, is determined ½ delivery period(recommended for a delivery period of less than 10 days to determine the current stock rate equal to the delivery period).
· Transport stock is formed for those deliveries for which there is a gap between the terms of receipt of payment documents and materials. It is defined as the excess of the terms of cargo turnover (the time of delivery of goods from the supplier to the buyer) over the terms of the document flow and is set as number of days the cargo is in transit(it is recommended to determine the transport stock as ½ of the transport period for a transport period of more than 10 days).
· Safety stock is created to provide production with material resources for the period of a possible violation of the delivery time and is set as ½ of current(or otherwise at the discretion of the firm, as a percentage of the current stock).
· Preparatory/technological stock is created to provide production with material resources for the period of preparation of materials for production, including analysis and laboratory tests, as actual number of days to prepare.
Thus, in the problem, the stock rate is determined by the following types of stocks:
· Current stock ½ of 15 days = 7.5 days
· Transport stock absent
· Safety stock 0.7*7.5 = 5.25 days
· Preparatory Stock 2 days
Total inventory rate 7.5+5.25+2=14.75 days
The average daily consumption is 150 m 3 * 300 rubles / m 3 \u003d 45,000 rubles
The standard is 45,000 rubles * 14.75 days = 663,750 rubles
This means that for normal functioning the company is required to invest 663,750 rubles in the turnover of red clay.
Answer: 663,750 rubles.
TURNOVER TASK
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turnover
Turnover acceleration
Turnover slowdown
Initial data: Option 1
Initial data: Option 2
The company uses 11,000,000 rubles in turnover and produces products worth 34,000,000 rubles. Estimate how the amount of funds in circulation will change if next year the company produces 10% more products (by 37,400,000 rubles), Estimate the amount of funds released.
Guidelines
OPTION 1
OPTION 2
Kob \u003d Cost of commercial products / Number of working capital
Kob / base \u003d 34000000 / 11000000 \u003d 3.09 times a year
working capital Npl \u003d Planned cost / Kob / pl
Working capital Npl \u003d 37,400,000 / 3.54 \u003d 10,562,260 rubles
Thus, the planned need for working capital is 10,562,260 rubles (this is the first answer).
Let's calculate the release working capital.
If there had been no change in turnover, it would have remained at the level of 3.09 turnovers per year, as in the base period. Then, for the production of products for 37,400,000 rubles, working capital would be required in the amount of:
Working capital Npl / f = Cost price planned / Kob / f
Working capital Npl \u003d 37,400,000 / 3.09 \u003d 12,100,000 rubles.
Compare this result with the planned working capital:
The release of working capital will be 12,100,000 rubles - 10,562,260 rubles = 1,537,740 rubles (this is the second answer).
STAFF PLANNING TASK
Plan the turnout per day, the turnout per shift, and the headcount of the main production workers if it is planned to produce 20,000 units. products at a time rate of 5.5 standard hours per unit. It is planned to reduce the balance of finished products in the warehouse by 100 units.
The operating mode of the enterprise is 247 working days a year, 2 shifts of 8 hours. According to the operating mode of the enterprise, a 40-hour work week is applied for employees. Vacation is 25 working days (35 calendar days/5 weeks). Planned downtime ratio 5%, compliance ratio 1.1, no-show ratio 12%.
Guidelines
When calculating economic indicators you should always choose the method that gives the most accurate result. In this case, when planning the number, you can use the most accurate calculation method - by labor intensity production program, since we have all the data to apply it.
We calculate the labor intensity of the production program (Tpp (h) - the time required to produce the planned volume of products)
Тpp \u003d 20000 units * 5.5 norm-h \u003d 110000 hours
We calculate the planned time of work of one worker for the production of products per year - the effective fund of working time of one worker. It is determined by the personnel fund (the most accurate calculation is given by the calculation according to the calendar for each month, you can use the data of the production calendar in which this calculation is given, see here http://www.buh.ru/info-63 or http://base. consultant.ru/cons/cgi/online.cgi?req=doc;base=LAW;n=137273) minus vacation time and planned downtime associated with the organization of work and regulated equipment downtime.
According to the data in the problem, using the production calendar with a 40-hour working week, 1970 hours is the time sheet of working time, then:
Fef \u003d (1970 hours - 25 days of vacation * 8 hours) * (1-0.05) \u003d 1681.5 hours
To calculate the number, we need to take into account the change in the balance of finished products in the warehouse. In our case, the warehouse turnover will reduce the labor intensity of the production program, which we will take into account with a minus sign in the calculation (the reverse situation is also possible, when the warehouse turnover increases the labor intensity of the production program, this happens if we plan to increase the stock of finished products in the warehouse) :
Osk \u003d Nvr * ∆Qsk,
Osk \u003d 5.5 norm-h * (-100) \u003d - 550 h
We calculate the turnout number per day (that is, without taking into account the division of workers into shifts during the day):
chiav = 
=59.17 people or 60 people per day
Chsp = 
= 68 people
The number of hours per shift is determined in the process of operational planning and depends on the decision on the distribution of work in shifts. If the decision is made on the distribution of 50/50, then we distribute 60 workers, 30 people per shift.
So, you need to hire 68 people, while 60 people / shifts should be worked out during the day, or the turnout number per day is 60 people, with a 50/50 distribution over shifts, the turnout number per shift will be 30 people.
FINANCIAL OBJECTIVE
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Working capital planning task
and turnover management
turnover- a property of working capital, which is evaluated by two indicators related to each other:
1. number of turnovers per period (year)
2. the duration of one turnover of working capital in days.
Turnover acceleration is always expressed by an increase in the number of revolutions and a simultaneous reduction in the duration of one revolution.
Turnover slowdown is always expressed as a reduction in the number of revolutions and a simultaneous increase in the duration of one revolution.
Effective economic situation- acceleration of turnover.
Acceleration of turnover allows you to:
Or increase the volume of output (and hence profit), with the same amount of working capital (that is, without additional investment);
Or release the same volume of products, freeing funds from circulation (release of working capital);
Either both processes occur simultaneously, that is, the volume of output grows, but due to a lower need for investment than with basic turnover (also estimated by the release of funds from circulation).
Let's consider two variants of the practical task of planning working capital against the background of a simultaneous increase in the volume of activities and a change in turnover. In the first option, the turnover is controlled through the impact on the duration of the turnover. In the second, through the control of the number of revolutions.
Initial data: Option 1
The company uses 11,000,000 rubles in turnover and produces products worth 34,000,000 rubles. Estimate how the amount of funds in circulation will change if next year the company produces 10% more products (by 37,400,000 rubles), reducing the turnaround time by 15 days. Estimate the amount of funds released.
Initial data: Option 2
The company uses 11,000,000 rubles in turnover and produces products worth 34,000,000 rubles. Estimate how the amount of funds in circulation will change if next year the company produces 10% more products (by 37,400,000 rubles), increasing turnover by 0.45 times. Estimate the amount of funds released.
Guidelines
OPTION 1
We calculate the turnover in the base period:
Kob \u003d Cost of commercial products / Number of working capital
Kob / base \u003d 34000000 / 11000000 \u003d 3.09 times a year
Duration of turnover in the base period:
Dbase \u003d 365 / 3.09 \u003d 118.09 days one revolution lasts
In the planning period according to 1 variant of the condition:
Dpl \u003d Dbase - planned change
Dpl \u003d 118.09 - 15 \u003d 103.09 days will last one revolution in the next year according to the plan
Kob / pl \u003d 365 / Dpl \u003d 3.54 times a year
Working capital Npl \u003d Planned cost / Kob / pl
Working capital Npl \u003d 37,400,000 / 3.54 \u003d 10,562,260 rubles
Thus, the planned need for working capital is 10,562,260 rubles (this is the first answer).
Calculate the release of working capital.
If there had been no change in turnover, it would have remained at the level of 3.09 turnovers per year, as in the base period. Then, for the production of products for 37,400,000 rubles, working capital would be required in the amount of:
Working capital Npl / f = Cost price planned / Kob / f
Working capital Npl \u003d 37,400,000 / 3.09 \u003d 12,100,000 rubles.
Compare this result with the planned working capital:
The release of working capital will be 12,100,000 rubles - 10,562,260 rubles = 1,537,740 rubles (this is the second answer).
OPTION 2
All results will be the same, but the calculation algorithm is changing, it is simplified, since we do not need to use the D indicator, we can carry out all calculations by the turnover ratio in times
So, we calculate the turnover in the base period:
Kob \u003d Cost of commercial products / Number of working capital
Kob / base \u003d 34000000 / 11000000 \u003d 3.09 times a year
In the planning period, according to 2 conditions:
Cob / pl \u003d Cob / base + planned change
Kob / pl \u003d 3.09 + 0.45 \u003d 3.54 times per year
Working capital Npl \u003d Planned cost / Kob / pl
Working capital Npl \u003d 37,400,000 / 3.54 \u003d 10,562,260 rubles
Thus, the planned need for working capital is 10,562,260 rubles (this is the first answer).
Calculate the release of working capital.
If there had been no change in turnover, it would have remained at the level of 3.09 turnovers per year, as in the base period. Then, for the production of products for 37,400,000 rubles, working capital would be required in the amount of:
Working capital Npl / f = Cost price planned / Kob / f
Working capital Npl \u003d 37,400,000 / 3.09 \u003d 12,100,000 rubles.
Compare this result with the planned working capital:
The release of working capital will be 12,100,000 rubles - 10,562,260 rubles = 1,537,740 rubles (this is the second answer).
SHARES OBJECTIVE
Task 1
AAA Open Joint Stock Company issued 500,000 shares.
The nominal value of one share is 10 rubles.
400,000 shares - ordinary, 100,000 shares - preferred with a 5% dividend.
Calculate the dividends and profitability of shares of all types if the profit of the JSC planned for distribution among shareholders is 1,000,000 rubles.
Guidelines
Dividend - it's part of the profit joint-stock company paid by him for issued shares in accordance with the decision of the general meeting; this is the income of the owner of the share, which is transferred to him by the joint-stock company in the manner established by this company.
Dividends in a joint-stock company are established and paid separately for preferred and ordinary shares.
The owner of a preferred share has an advantage in receiving dividends compared to the owner of an ordinary share. Owners of different types of preferred shares may have different sequences in their receipt, which may be determined by the charter of the company.
The last step is to decide on the payment of dividends on ordinary shares.
Par value of a share pH
N- the total number of shares, of which no more than 25% are preferred - Npr, the rest are ordinary Nb
Authorized capital of JSC = Rn × N= (Rn × Npr)+(Rn × Nb)
Book value of a share Rb determined on a specific date according to the balance sheet
Market value of a share pp is the price at which a share is bought and sold at this moment on the market, is determined by exchange quotations, upon the sale.
Dividend rate per share - i
Amount of dividends I
The amount of dividends I and the dividend rate are related by the formula I = i × Pн
For preferred shares, dividend payment terms are set at issue (often through a fixed i or a fixed percentage of profits)
For ordinary shares, the terms of payment of dividends are determined, as a rule, by the decision of the meeting of shareholders in each year.
Solution
We calculate dividends on preferred shares:
Ipr \u003d i × Pn \u003d 5% * 10 rubles \u003d 0.05 * 10 rubles \u003d 0.5 rubles per share
For all preferred shares: Amount Ipr \u003d I pr * Npr \u003d 0.5 rubles / piece * 100,000 pieces \u003d 50,000 rubles
We pay dividends on preferred shares
1,000,000 rubles - 50,000 rubles = 950,000 rubles
Dividend — this is a part of the profit of the joint-stock company paid by it for issued shares in accordance with the decision of the general meeting; this is the income of the owner of the share, which is transferred to him by the joint-stock company in the manner established by this company.
After payment in favor and deductions to mandatory funds used in two directions: expansion of activities(reinvestment) and payment of dividends. The size of the latter depends on the results of the work of the joint-stock company, i.e., the amount of profit received by it and the dividend policy pursued by it. On average, usually half of the company's net profit goes to the payment of dividends, the other - to the needs of itself. If the company is developing rapidly, then the share of dividends in net profit is usually small. If the market price of a share is experiencing a downward trend, then one of the ways to overcome the latter is to increase the amount of dividend income per share.
The decision on the payment of dividends and their final amount is made by the general meeting of shareholders, but it is not entitled by law to increase the amount of the dividend, which is recommended to it by the board of directors of the joint-stock company.
Education and dividend payment
Dividend is the net profit per share of a joint-stock company based on the results of current year, distributed among the shareholders in proportion to the number of shares they have of the corresponding categories and types.
The dividend is set in monetary terms or as a percentage of the face value.
In accordance with the Law “On Joint Stock Companies”, a dividend cannot exceed the amount recommended by the board of directors (supervisory board) of a joint stock company.
Types of dividends
Dividends paid by a joint-stock company can be classified according to various types depending on the used classification characteristics:
| Classification characteristics | Types of dividends |
| Stock category |
Ordinary stock:
Advantages privileged shares:
|
| Payment period |
|
| Payment method |
|
| Payout amount |
|
on which dividends are accrued
Dividends are accrued and paid only on those shares that are in the hands of shareholders and fully paid by them.
Shares that do not pay dividends. For some groups of issued (placed) shares, dividends are not accrued.
Shares on which no dividends are accrued or paid:- Not placed (not put into circulation)
- Acquired and on the balance sheet of the joint-stock company by decision of the board of directors
- Companies bought out and on the balance sheet by decision of the general meeting of shareholders or at their request
- Received at the disposal of the company due to non-fulfillment by the buyer of obligations to acquire them
Decision of the meeting of shareholders on dividends. In accordance with the law, a joint-stock company may decide to pay dividends in full or in part or not to pay them at the end of the reporting year.
The law establishes situations in which it cannot decide on the payment of dividends.
Announcement decision annual dividends cannot be accepted:- Until full payment
- If the cost requirement is not met net assets
- Until the redemption of all shares at the request of shareholders
- If there are or will appear as a result of the payment of dividends signs of bankruptcy of the joint-stock company
Dividend Recipients
The dividend can be paid to both shareholders and nominal holders of shares entered in the register of shareholders of the company in the prescribed manner.
If there is a nominal holder in the register of shareholders, then dividends are accrued to him, and he is responsible for transferring the accrued dividends to his depositors (specific shareholders).
If, after the date of compilation of the list of persons entitled to dividends (date of closing of the register), the shares or part of them are sold to another person, then the right to dividends remains with their former owner. In this case, the acquirer is entitled to receive dividends only on the basis of a power of attorney issued by the seller, included in the list of persons entitled to dividends.
Order of payment of dividends
Dividends in a joint-stock company are established and paid separately for preferred and ordinary shares.
The owner of a preferred share has an advantage in receiving dividends compared to the owner of an ordinary share.
In turn, the owners of different types of preferred shares may have a different sequence in their receipt. According to the Law "On Joint Stock Companies", dividends are paid first of all on those preferred shares that give the owners an advantage in the order in which dividends are received. If the financial conditions of the joint-stock company allow paying dividends on this type of shares, the possibility of paying dividends on cumulative shares on which dividends were not paid or paid partially in previous periods is considered. If dividends can be paid on the listed two types of preferred shares, the possibility of paying dividends on preferred shares, for which the amount of the dividend is determined by the charter of the company, is considered. Then a decision can be made to pay dividends on preferred shares for which the amount of the dividend is not determined. And lastly, a decision is made on the payment of dividends on ordinary shares.
Authorized capital of 1 billion rubles. divided into preferred shares (25%) and ordinary shares (75%) with the same par value of 1,000 rubles, i.e., a total of 1 million shares. For preference shares, the dividend is set at 14% of the nominal value. What dividends can be declared on shares, if the board of directors recommends that 110 million rubles be allocated for the payment of dividends. net profit?
- Calculation of dividends attributable to preferred shares: 1,000 rubles. * 14 / 100 = 140 rubles. per share, only 140 rubles. * 250,000 shares = 35,000,000 rubles.
- Determination of net profit that can be used to pay dividends on ordinary shares: 110 million rubles. - 35 million rubles. = 75 million rubles
- Calculation of the dividend paid on one ordinary share: 75,000,000 rubles. : 750,000 shares = 100 rubles, or 10% of the nominal value of 1000 rubles.
Form of payment of dividends
A dividend may be paid in cash, and in the cases provided for by the company's charter, in other property, as a rule, shares of subsidiaries or own shares.
If dividends are paid with own shares, then this practice is called capitalization of income, or reinvestment. in the world and Russian practice paying dividends on own shares is quite common. In this case, the dividend is set either as a percentage of one share, or in a certain proportion, taking into account the date of their acquisition (for example, 4 shares per 10 shares previously acquired during the year of ownership or 1 share per 10 previously acquired shares for 1 full quarter of ownership).
Income capitalization modelThe theoretical share price in this model is based on the fact that it is the sum of discounted dividends paid on it.
If a share pays approximately the same dividend every year (period), as is the case, for example, in preferred shares, then the above formula is greatly simplified:
If a share pays a dividend, the size of which increases annually by the same small percentage, then formula 2.1 takes the form:
The main problem of this model is to predict the size of the dividend, which, under the influence of a variety of reasons, usually does not remain the same and its future size can only be discussed over a relatively short period of time, usually calculated in months;
An example of calculating the payment of dividends by shares, or the capitalization of incomeSuppose that 20 shares are purchased on 05/10/04, the decision to pay dividends in the form of own shares was made on 02/20/05 at the rate of 4 shares for 10 acquired over a full year of ownership: 20 shares / 10 shares * 4 shares * 9 months. / 12 months = 6 shares (since full months possessions - 9).
Terms of payment of dividends
The term for the payment of annual dividends may be determined by the charter of the company or by a decision of the general meeting of shareholders on the payment of annual dividends. If the charter of the company or the decision of the general meeting of shareholders does not determine the date of payment of annual dividends, the period for their payment should not exceed 60 days from the date of the decision to pay annual dividends.
If the decision to pay dividends is made, then their payment becomes the responsibility of the joint-stock company.
However, the Law "On Joint Stock Companies" establishes that a company cannot pay declared dividends on shares if, on the date of payment:- the company meets the signs of insolvency (bankruptcy) or they will appear in the company as a result of the payment of dividends;
- the value of the company's net assets is less than the sum of its authorized capital, reserve fund and the excess of the liquidation value of the placed preferred shares, determined by the charter, over their nominal value or it will become less than the specified amount as a result of the payment of dividends.
Upon termination of these circumstances, the obligations of the company to pay dividends will be renewed.
Taxation of dividends
The joint stock company is an agent for the collection and timely transfer of taxes withheld from dividends to the budget.
When paying accrued dividends, a joint-stock company withholds taxes.
The procedure for paying dividends in a joint-stock company
To determine the procedure for paying dividends, a joint-stock company develops and approves general meeting shareholders a special provision on the procedure for accrual and payment of dividends of a joint-stock company. The key issues in deciding on the payment of dividends are the form of payment of dividends, their size and payment period.
The second type of shares that a company can issue are preferred shares. Like ordinary shares, preferred shares are issued to raise capital. However, investors who invest in preferred stock have different goals than investors who invest in common stock. Preferred shares have some advantages over ordinary shares.
There are several types of preferred shares, each of which has its own distinctive characteristics to attract a certain category of investors. The majority of preferred shares have at least, one of the following properties: Dividend preference, liquidated corporation's distribution preference, convertibility and redemption rights.
Preferred shares may be used to achieve management's strategic objectives. For example, an article from the Wall Street Journal states that J. Si. Penny" - a large American network retail- plans to issue preferred shares for its new Employee Equity Plan, and decided to buy back about 11% of its outstanding common shares with the $700 million received from the issue.
As a result of the operation, the share of the company owned by employees would increase to 24%. The new preferred shares would pay a dividend of 7.9% per annum and could be converted into common shares at $60 a share. Stock market reacted positively to the plan, and the company's share price rose nearly $2 a share to $48 on the day of the announcement. What benefits does management see for the company in this complex plan?
The article says: "Analysts say the move makes the company less likely to be taken over by other companies as share prices and earnings per share rise, and the number of shares held by employees increases." In addition, company representatives believe that its shares are undervalued and the market value of the shares will increase, as the number of shares outstanding will decrease after the implementation of the plan.
How financial instruments are becoming more complex, and the distinction between shares and liabilities presents further difficulties. Committee on international standards financial reporting already developed a number of requirements on this issue. However, in many countries, including China and Korea, regulators have only begun to look into the issues.
Dividend benefit
As a rule, preference shares have an advantage over ordinary shares when receiving dividends. It consists in the fact that holders of preferred shares must receive a certain amount of dividends before holders of ordinary shares receive their dividends.
The amount payable to holders of preferred shares before dividends are paid to holders of ordinary shares is usually expressed as a certain amount per share or as a percentage of the par value of the preferred share.
For example, a corporation may issue preferred shares and pay a dividend of 4 per share, or issue preferred shares with a par value of 50 and pay an annual dividend of 8% of par value, which is the same 4 per share.
Holders of preferred shares are not guaranteed the payment of dividends; to do this, the company must make a profit, and the board of directors must declare dividends on preferred shares before an obligation to pay them arises. If dividends on preference shares are not declared in the current year, then the consequences of this may be different, depending on the conditions under which the shares were issued.
In the case of non-cumulative preference shares, if the board of directors does not declare a dividend on preference shares in the current year, then the company is not obligated to pay dividends for that year in the future. However, in the case of cumulative preference shares, the fixed amount of dividends per share accumulates year on year and must be paid in full before dividends on common shares can be paid.
Dividends not paid in the year they should have been paid are called past due dividends.
Suppose a corporation is authorized to issue 10,000 5% cumulative preference shares with a par value of 100. All authorized shares have been issued and are outstanding. If no dividends were paid in 20x1, then at the end of the year the corporation would have 50,000 outstanding preferred stock dividends (10,000 shares X 100 X 0.05 = 50,000). If the corporation decides to pay a dividend in the next 20X2, it must first pay the arrears plus the preferred stock dividend for that year before paying the dividend to ordinary shareholders.
Past due dividends are not recognized as a liability of the corporation because the corporation does not have a real obligation until the dividend is declared by the board of directors and subsequently approved by shareholders. A corporation cannot be sure of making a profit, so it cannot promise dividends to shareholders. However, if a company has dividends in arrears, then this must be disclosed either directly in the text of the financial statements or in a footnote.
Assume that on January 1, 20X1, a corporation issues 10,000 6% cumulative preference shares having a par value of 10 and 50,000 common shares. The corporation's first year of operation generated a profit of only 4,000. The corporation's board of directors declared a cash dividend of 3,000 to preferred shareholders. The dividend situation at the end of 20x1 was as follows:
Now suppose that in 20x2 the company made a profit of 30,000 and decided to pay dividends to holders of both preferred and common shares. Let's pay attention to the fact that the preferred shares of the company are cumulative. The corporation must first pay the 3,000 past due dividends plus that year's preferred stock dividends before it can pay dividends to common stockholders. Further assume that the board of directors of a corporation declares a dividend of 12,000 on preferred and common shares. The dividends will be distributed as follows:
Entry reflecting the declaration of dividends:
Asset Allocation Advantage
Holders of preferred shares have certain advantages in the distribution of the assets of a liquidated corporation. For example, when a corporation winds down, its preferred shareholders are entitled to a refund of either the par value of their shares or a certain higher liquidation amount per share before the ordinary shareholders can receive any share of the company's assets. This benefit may also include any past due dividends the company owes to preferred shareholders.
Convertible Preferred Shares
To give greater interest in preferred shares, they are sometimes endowed with convertibility. Holders of convertible preferred shares may exchange their shares for common shares at a rate determined by the terms of the preferred share agreement. Convertibility can be attractive to investors for two reasons.
Firstly, the owner of a convertible share, like any other holder of preferred shares, is more confident in receiving regular dividends than the owner of ordinary shares.
Secondly, in the event of an increase in the market price of an ordinary share, convertibility allows holders of preferred shares to also receive their share in this increase. The increase in value will be made either by a corresponding increase in the value of the preferred share itself, or by converting it into an ordinary share.
For example, suppose a company issues 1,000 8 percent convertible preferred shares with a par value of 100. Each such share can be converted into five common shares of the same company at any time. The market price of a common share is currently 15. In the past, dividends on common shares were about 1 per share per year.
A shareholder with one preferred share now owns an investment whose market value approaches 100 and is more likely to pay dividends than a common share.
Assume that over the next few years, the company's earnings rise and the common stock dividend also rises to 3 per share. In addition, the market price of an ordinary share will increase from 15 to 30.
A shareholder holding preferred shares will be able to convert each preferred share into five ordinary shares and thereby increase his dividend from 8 per preferred share to 15 (3 per each of 5 ordinary shares). Moreover, the market value of one preferred share will reach approximately 150, which is the market value of 5 ordinary shares, since each preferred share can be exchanged for 5 ordinary shares.
Redeemable preference shares
Most preferred shares are redeemable preferred shares. This means that they can be redeemed or withdrawn from circulation by the decision of the company that issued them at the price specified in the share purchase agreement. The owner must relinquish the non-convertible preferred shares at the request of the company. If the preference share is convertible, then the shareholder can either relinquish it or convert it into common stock when the corporation buys back the shares.
The redemption price is usually higher than the face value of the share. For example, a preference share with a par value of 100 can be redeemed for the amount of 103. In the event of redemption of shares or their return, the shareholder has the right to receive:
- (1) the par value of the shares;
- (2) redemption premium;
- (3) past due dividends;
- (4) the corresponding (calculated in proportion to the current year's share up to the maturity date) portion of the dividend for the current period.
A company may redeem its shares for several reasons. First, the company may encourage the conversion of preferred shares to common shares, since the cash dividends on the former are higher than those paid on common shares. Second, current-market preferred shares can be replaced in this way by other preferred shares with lower dividend levels or long-term debt that will have a lower value after taxes. Third, the company may simply be profitable enough to forego preferred capital.
retained earnings
Retained earnings, which is another component of shareholders' equity, represent shareholders' claims on the company's assets arising from profitable activities. Detailed discussion of the balance sheet about retained earnings can be found in the chapter on earnings and retained earnings.
Case Study
An increasing number of shares of various corporations are listed on the stock exchanges of the world. While the price at which these shares are initially issued can be clearly defined and accounted for, the price at which the shares are likely to sell for stock exchange, uncertain and difficult to predict.
For example, in Australia, the first listed AMP shares began trading on June 15, 1998 on the Sydney Stock Exchange at $35.99, well above the expected price, i.e. about 20 dollars. Perhaps the aggressive buying of shares by Deutsche Bank on behalf of its clients caused such a price increase. However, by July 6, the price of AMP shares settled at $19.92, which led to significant losses for the bank and its clients.
Debt (arrearage) - an overdue payment that can accumulate.
Cumulative dividends are dividends on a preference share that is subject to the clause "that all accumulated unpaid dividends on it must be paid earlier than dividends on ordinary shares.
One of the inherent characteristics of almost all preferred shares is cumulativeness, which provides for the transfer of unpaid dividends to a later date. The company is required to pay outstanding dividends on preferred shares before dividends on common shares. The board of directors of the company may not pay dividends on preferred shares for 3 consecutive years. If the par value of a share is $100, then the company in this case has a debt to preferred shareholders in the amount of $24. per share. Before paying dividends on ordinary shares, the company must pay $24. for each preference share. It should be emphasized that precisely because preference dividends are classified as delinquent obligations, there is no guarantee that they will ever be paid. If the company does not intend to pay dividends on ordinary shares, then there is no need for it to repay the debt on preferred shares. Preferred dividends are usually not paid due to insufficient profits, but the company is not required to make these payments even when earnings recover.
If preferred dividends are deferred and the company intends to pay dividends on common shares, it may decide not to pay the preferred shareholders but to offer them an exchange. Accumulated dividends on the issue of preferred shares with a par value of $100. are, say, $56, and the market price of a share is $38. The company may offer preferred shareholders to exchange their shares for ordinary shares of this company, market value$90 Although theoretically, preferred shareholders are asked to give up $156. ($100 par plus $56 dividend), the swap promises to net them $90, much higher than the current market price of the preferred share of $38. In order to withdraw preferred shares from circulation, the company must obtain the consent to this operation of a certain number of shareholders (by the volume of investments), usually 2/3-. Therefore, this condition makes the exchange conditional on obtaining the required number of votes.
If preference dividends are not cumulative, unpaid dividends are not carried forward. Those. a company may pay dividends on common stock regardless of the fact that it has in the past ignored dividend payments on preferred stock.
From an investor's point of view, preferred stock without a deferral clause is little better than income bonds. In fact, income bonds are less risky, since the terms of their interest payments are usually clearly defined, and, in addition, bondholders have a priority right to the assets of the firm in the event of its insolvency. Due to the obviousness of these shortcomings, issues of non-cumulative preferred shares are quite rare, although they can be used in the reorganization of the company.