要求：有好的項目（高回報）和分紅之間的關系：你如何判斷你公司的ROC？計算過去幾年（如2013-2017年） The relationship between having GOOD PROJECTS (with high returns) and paying out dividends: How do you judge the ROC of your company?Calculate it over the past years (say 2013-2017)
Based on the past year data used in between 2013 to 2017, for IBDM, we can see a general pattern that the higher the ROC, the lower the Dividend paid. Generally speaking, Dividend, being a portion of the company’s profit, is distributed to stockholders and it is a signal of the confidence of the company and its financial health. Whereas, Return on Capital, accounts for not only the dividend, but also the interests, increase in the capital gain and other terms. Both the two terms would give a picture of the company but neither give a full picture. There are more factors for consideration, like the Balance Sheet, Income Statement and many others.
How does it compare to the WACC (you have calculated the WACC in FINC 5000 last semester homework)
We have calculated that WACC = 3%. Compare the performance of ROC with WACC, we can see that the company IBM, outperforms WACC for year 2013-2016, but underperforms WACC for year 2017.
Based on this is your conclusion that your company’s investments add considerable value ROC>>>WACC or? If so, do you think this has any influence on your company’s dividend/buy back policy? Explain and add relevant data to proof your statements!
As WACC is a common measurement of the minimum expected weighted average return given the risk level of the future cash flow, a ROC >> WACC is a rule of thumb. However, we could not claim that we should lower the Dividend to increase ROC so as to follow the above rule of thumb. This is because ROC takes into account the other profitability factor, like the Net Income. A very big reason for ROC to be underperforming WACC for year 2017 is the shrinkage of Net Income. Therefore, we should not claim that the “ROC>>>WACC”statment has a direct influence on the company’s dividend policy.