Ashton Moss- 201104366
Prof Dr. Tim Haynes, BSAD 342:11
Case assignment #2
Date: November 25, 2014
Finning Tractor and Equipment Company Limited
Introduction: The purpose of this memo is to summarize my analysis on the case regarding “Finning Tractor and Equipment Company Limited” which is the largest distributor of caterpillar products in North America. In this memo I will provide financial analysis on the company. In addition, I will focus on the dividend policy implemented by the board of directors and how it correlates to the performance of the company. Background information: Finning sold, leased, rented and serviced a variety of caterpillar equipment. They provided full services, parts and service facilities and one or more field service representatives from their many branches, depots and residences across North America. Finning also had acquired numerous other companies as a mean to expand and diversify itself in the market. Analysis: It is of my opinion that Finning maintained a compromised dividend policy. Features of this policy includes, avoidance of cut backs on positive NPV projects to pay a dividend, dividend cuts, the need to sell equity, and long term goals of maintaining a target debt/equity ratio and a target dividend payout ratio. Finning acquired and invested in many other companies throughout the time period described in the case, most notably the investment of two point five million in Dome Petroleum’s Beaufort Sea project for one half of one per cent participation in net earnings. Studies have shown, firms that acquire many other firms generally see a decline in stock value, assuming that these were all positive NPV investments, those acquisitions coincided with their dividend policy. Vinod K. Sood, President and Chief Operating Officer of Finning adamantly expressed that the company will not cut dividends as that most likely will lead to a decline in stock price. That being said due to the three stock splits occurring in 1972,...
References: Westerfield, R. & Roberts, G. (2013). Fundamentals of corporate finance: Eight Canadian Edition. McGraw-Hill Ryerson (2013).
Finning tractor and equipment company LTD. Case study.
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