Dividend Policy Analysis Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc. operations.

(a) Suggest factors to be considered by the board of directors in establishing a dividend policy.

(b) Compute the rate of return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc.

(c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis.

Transcribed Image Text:

($000 omitted) 2010 2007 2008 2011 2009 Sales Net income Average total assets Current assets Working capital Common shares: Number of shares outstanding (000) Average market price $16,000 $6,000 700 4,200 1,200 $4,000 $20,000 $14,000 800 250 3,000 1,000 400 22,000 8,000 3,600 19,000 11,500 6,000 3,200 1,200 500 2,000 2,000 2,000 20 20 $9 $6 $4