Champion Road Machinery Limited, the worlds second largest manufacturer of graders and other large machinery has been performing well above expectations and cash properly managed. A financial analysis of the Champion Road Machinery Company was performed in order to provide recommendations on the dividends distribution policy. Decision on the Company’s dividends policy will depend on three main factors: * Current financial situation (Cash flow, Required Retained Earnings, Projected Growth, and Equity available for distribution) * Industry and main competitors’ dividends strategies
* Types of shareholders and their goals and expectations from the Company Based on the above mentioned information, our recommendation would be to implement Regular-dividend-plus-extra policy.
In the 6 month period ending July 2, 1994, Champion had generated $12.3 million in cash compared with the $4.3million a year earlier. Champion reached a net profit of $8,100,000.00 and Sales volume reached $155,000,000.00 (23% increase comparing to 1993). In April 1994, Champion successfully performed IPO and had net cash from IPO of $26,000,000.00. Part of the cash was used to repay long-term debt. In addition to this, Champion is very confident that even if it were to purchase a few companies that were likely to meet its criteria, there will still be excess cash to pay out a dividend. Company has the following possible options for the dividend policy: 1. Do not distribute any dividend
2. Distribute a regular dividend
3. Distribute cash via a special dividend or stock repurchase.
Arguments for and against declaring dividends in champion’s case Arguments FOR dividends:
If Champion decides to payout a dividend, it will show a good sign for investors because dividends provide certainty about the company's financial well-being; these dividends will also be attractive for investors looking to secure current income. Companies without a...