(L06) WRITING (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.

($000 omitted)

2018 2017 2016 2015 2014 Sales revenue $20,000 $16,000 $14,000 $6,000 $4,000 Net income 2,400 1,400 800 700 250 Average total assets 22,000 19,000 11,500 4,200 3,000 Current assets 8,000 6,000 3,000 1,200 1,000 Working capital 3,600 3,200 1,200 500 400 Common shares:

Number of shares outstanding (000) 2,000 2,000 2,000 20 20 Average market price $9 $6 $4 — —

Instructions

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

(b) Compute the 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.