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Paul Pigeon is a day trader. He is interested in the common stock of Captain Computers Limited. The following data are available for the company:

  • Paul Pigeon is a day trader. He is interested in the common stock of Captain Computers Limited. The following data are available for the company:

2014

2015

2016

Dividends paid per share*

$4

$3

$2.50

Dividend yield ratio

5.5%

5.5%

5.5%

Dividend payout ratio

40%

40%

40%

Return on total assets

10%

12%

8%

Return on common stockholders equity

8%

14.5%

9%

*There were no changes in common stock outstanding over the three-year period.

Required: Paul would like answers to the following questions:

  • (2 marks) Is the market price of the companys stock going up or down?
  • (3 marks) Is the company employing financial leverage to the advantage of the common stockholders?

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