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chapter_09 - Chapter 9 For the Investor TO THE NET 1 Wendys...

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Chapter 9 For the Investor TO THE NET 1. Wendys 2001 2000 1999 a. Earnings per common share Basic earnings per common share Diluted earnings per common share $1.72 $1.65 $1.48 $1.44 $1.37 $1.32 b. Price/earnings ratio P/E $29.1 7 $ 1.65 17.68 $26.25 $ 1.44 18.23 $20.81 $ 1.32 15.22 c. Percentage of earnings retained 2001 % 15 . 86 000 , 649 , 193 $ 000 , 825 , 166 $ 000 , 649 , 193 $ 000 , 824 , 26 $ 000 , 649 , 193 $ = = - 2000 % 78 . 83 000 , 648 , 169 $ 000 , 133 , 142 $ 000 , 648 , 169 $ 000 , 516 , 27 $ 000 , 648 , 169 $ = = - 1999 % 41 . 82 000 , 585 , 166 $ 000 , 280 , 137 $ 000 , 585 , 166 $ 000 , 305 , 29 $ 000 , 585 , 166 $ = = - d. Dividend payout 2001 % 55 . 14 65 . 1 $ 24 $. = 2000 % 67 . 16 44 . 1 $ 24 $. = 1999 % 18 . 18 32 . 1 $ 24 $. = e. Dividend yield 2001 % 82 . 17 . 29 $ 24 $. = 2000 % 91 . 25 . 26 $ 24 $. = 1999 % 15 . 1 81 . 20 $ 24 $. = 234
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235
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2. Motorola, Inc. December 31 2001 2000 1999 Reorganization of business Other Charges Gains on sales of investments and businesses $1,858,000,000 Loss $3,328,000,000 Loss $1,931,000,000 Gain $596,000,000 Loss $517,000,000 Loss $1,570,000,000 Gain $226,000,000 Gain $1,406,000,000 Loss $1,180,000,000 Gain These line items make it difficult to form an opinion on the results of Motorola, Inc. 3. Boeing Co. December 31 2001 2000 1999 a. Earnings per common share Basic earnings per share Diluted earnings per share $3.46 $3.41 $2.48 $2.44 $2.52 $2.49 b. Price/earnings ratio P/E $38.78 $ 3.41 11.47 $66.00 $ 2.44 27.05 $41.44 $ 2.49 16.64 c. Percentage of earnings retained 2001 2000 1999 $2,826,000,000 - 582,000,000 $2,826,000,000 = 79.41% $2,128,000,000 - 504,000,000 $2,128,000,000 = 76.32% $2,309,000,000 - 537,000,000 $2,309,000,000 = 76.74% d. Dividend payout 2001 2000 1999 % 94 . 19 41 . 3 $ 68 $. = % 95 . 22 44 . 2 $ 56 $. = % 49 . 22 49 . 2 $ 56 $. = e. Dividend yield 2001 2000 1999 236
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% 75 . 1 78 . 38 $ 68 $. = % 85 . 00 . 66 $ 56 $. = % 35 . 1 84 . 41 $ 56 $. = 4. Microsoft Year Ended June 30, 2001 June 30, 2002 a. Total assets b. Shareholders’ equity c. Common stock shares issued and outstanding $ 58,830,000,000 $ 47,289,000,000 5,383,000,000 $ 67,646,000,000 $ 52,180,000,000 5,359,000,000 d. Market price x common shares issued and outstanding June 30, 2001 ($73.00) (5,383,000,000) = June 30, 2002 ($54.70) (5,359,000,000) = $392,959,000,000 $293,137,300,000 e. Total capitalization is represented by market price x common shares issued and outstanding. This represents the projected cash flow from this firm discounted at an interest rate. Investors constantly change their opinion of the projected cash flow and the discount rate to use. Shareholders’ equity is an amount on the balance sheet that represents shareholders’ interest. It is an accounting book number arrived at by following generally accepted accounting principles. 237
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QUESTIONS 9- 1. Earnings per share is the amount of income earned on a share of common stock during an accounting period. 9- 2. The Financial Accounting Standards Board suspended the reporting of earnings per share for nonpublic companies. 9- 3. Keller & Fink is a partnership. Earnings per share is a concept that only applies to corporate income statements. 9- 4. Earnings per share is a concept that only applies to common stock. The earnings per common share computation only uses earnings available to common stockholders. To arrive at the income that applies to common stock, preferred dividends are subtracted from net income in the numerator of the ratio. 9- 5. Since earnings pertain to an entire year, they should be related to the common shares outstanding during the year. The year-end common shares outstanding may not be representative of the shares outstanding during the year. 9- 6. Less preferred dividends will be subtracted from net income in the numerator of the earnings per share computation. This will increase earnings per share. In practice, whether earnings per share will be increased or decreased depends on the after-tax earnings that the firm would have from the funds used to retire the preferred stock in relation to the dividend decrease.
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