Potash Corporation of Saskatchewan Inc., known as PotashCorp, is the world's largest fertilizer enterprise by capacity and

Question:

Potash of Saskatchewan Inc., known as PotashCorp, is the world's largest fertilizer enterprise by capacity and a leading supplier to three distinct market categories: agriculture, animal nutrition, and industrial chemicals. On January 26, 2011, the company declared a 3-for-1 stock split on its common shares, for shareholders of record on February 14, 2011, with the share certificates to be distributed February 24, 2011. Financial information for PotashCorp for the years ended December 31, 2011 and 2010, follows (in millions of US dollars, except per share data):
______________________________________________2011 2010
Profit (loss) for the year.......................................$3,081.............$1,775
Shareholders' equity at December 31.........................7,847...............6,685
Cash dividends declared during the year.......................240.................118
Number of shares outstanding (at year end).................858.7...............887.9
Weighted average number of shares outstanding...........855.7...............886.4
Instructions
(a) Explain the different effects that a cash stock and stock split would have on PotashCorp's assets, liabilities, shareholders' equity, and the number of shares outstanding.
(b) What is the likely reason that PotashCorp has split its shares?
(c) The market price for the common shares on January 25, 2011, the day before the stock split was announced, was $161. What do you think the market price for a share would be immediately aft er the stock split? On February 14, 2011, aft er the stock split had taken effect, the stock price was $62.36. Does it appear that the stock market reacted favourably or unfavourably to the stock split?
(d) The cash per share declared on common shares (before the stock split) in 2010 was $0.40. After the stock split in 2011, the cash per share declared was $0.28. Is this better or worse than what you would have expected aft er the stock split and by how much?
(e) Calculate the return on shareholders' equity, earnings per share, and payout ratio for the shareholders for 2011 and 2010. Comment on the company's profitability. Shareholders' equity at December 31, 2009, was $6,305.
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