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C-Ratios, Life-Cycle

C-Ratios, Life-Cycle - CorporateFinance USC Dr.Bemis...

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Click to edit Master subtitle style Corporate Finance USC Dr. Bemis
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Click to edit Master subtitle style Chapter Outline Using the DuPont Identity
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Using the DuPont Identity n ROE = PM * TAT * EM n Profit Margin – measure of firm’s  operating efficiency n Total asset Turnover – measure of firm’s  asset use efficiency n Equity Multiplier – measure of firm’s  financial leverage
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Dividend Policy Effect on P/E n If a company has an above average earnings  growth rate, then that company will likely pay  out less dividends. n Conversely, if a company has a slower growth  rate in earnings, then the company will pay  out more dividends in order to attract  investors.   n Valuation for the latter company will likely be 
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Name Symbol Price Market Cap EPS (ttm) Div/Shr Div Yield Div Payout P/E 5 yr est EPS gr/annum INTUIT INC INTU 28.13 9.10B 1.35 N/A N/A N/A 20.8 13.1% CVS CAREMARK CP CVS 36.77 53.07B 2.25 0.30 0.8% 13.3% 16.3 12.7% MCDONALDS CP MCD 56.07 61.19B 3.77 2.00 3.6% 53.1% 14.9 9.1% AT&T INC T 26.21 154.64 B 2.02 1.63 6.2% 80.7% 13.0 4.1%
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n Dividend Yield  =   Dividend per share                                  -----------------------                                     Price per share n Dividend Payout =   Dividend per share                                    -------------------------                                                EPS
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Mature Companies n Retaining more of its earnings n Book Value not Growing n P/E is lower n Dividend Payout is high n Future Growth rate is lower n Low reinvestment opportunities (options  are to buy back stocks, pay debt or 
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Growth Companies n Market penetration n Low payout ratio n High Future growth rate n High reinvestment opportunities n Growing Book Value
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The average annual return for the next five years can be approximated by adding the dividend yield and 5 yr est EPS gr/annum.
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