Question

Please read Financial Statement Analysis Case 2: Wiebold in the end of chapter materials in the e Text. Answer questions a) b) & c) listed under Instructions. Please post your answer and respond to at least two of your classmates.

Case 2: Wiebold, Inc.

The following note related to stockholders' equity was reported in Wiebold, Inc.'s annual report.

On February 1, the Board of Directors declared a 3-for-2 stock split, distributed on February 22 to shareholders of record on February 10. Accordingly, all numbers of common shares, except unissued shares and treasury shares, and all per share data have been restated to reflect this stock split. On the basis of amounts declared and paid, the annualized quarterly dividends per share were $0.80 in the current year and $0.75 in the prior year.

Instructions

(a)  

What is the significance of the date of record and the date of distribution?

(b)  

Why might Wiebold have declared a 3-for-2 for stock split?

(c)  

What impact does Wiebold's stock split have on (1) total stockholders' equity, (2) total par value, (3) outstanding shares, and (4) book value per share?

d) Why is it beneficial for companies to do stock splits to lower the price per share?

Answer 1

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Answer questions a) b) & c) listed under Instructions.

(a) What is the significance of the date of record and the date of distribution?

Ans a) The date of record is the day on which the company checks its records to identify shareholders of the company. An investor must be listed on that date to be eligible for a dividend payout.

The date of payment is the day the company mails out the dividend to all holders of record.

In order to be eligible for payment of stock dividends, you must buy the stock (or already own it) at least two days before the date of record. That's one day before the ex-dividend date.

If you buy a stock one day before the ex-dividend, you will get the dividend. If you buy on the ex-dividend date or any day after, you won't get the dividend.

Monday	Tuesday	Wednesday	Thursday	Friday
7th	8th	9th	10th	11th
	Ex-div date	Date of record

As we can see from the Table above, if we buy on the ex-dividend date (Tuesday), only one day before the date of record, we will not get the dividend because our name will not appear in the company's record books until Thursday. If we want to buy the stock and receive the dividend, we need to buy it on Monday. When the stock is trading with the dividend, the term cum-dividend is used.

The significance of the record date and date of distribution is that it determines the amount that will be credited to a particular shareholder.

(b) Why might Wiebold have declared a 3-for-2 for stock split ?

Ans : A stock split occurs when a company increases its share count by issuing new shares to existing shareholders.

After a stock split, we'll own more shares, but the total value of our holding shouldn't change by a meaningful amount. Stock splits don't affect the intrinsic value of a stock or of our holdings.

A company might want to split to make it easier for investors to buy and sell its stock by increasing liquidity, or perhaps for aesthetic and psychological reasons (some investors may be turned off by a high stock price, even though it has nothing to do with valuation.)

For instance, in a 3-for-2 stock split, the company will increase its share count by half, and its share price should correspondingly decline by approximately one-third. The market value of our holding therefore remains more-or-less the same.

(c) What impact does Wiebold's stock split have on

Ans : (1) total stockholders' equity - A stock split is a corporate equity transaction that increases the number of shares outstanding while proportionally reducing the value per share. So , stock splits have no effect on existing shareholders’ equity

(2) Total par value - When a company's stock splits, the change in the par value is offset by a corresponding change in the number of shares so the total par value remains the same. The total stockholders' equity is unaffected by the stock split and no entries are recorded.

(3) outstanding shares - The no will increase

(4) book value per share – It will decrease

For example, if a CO .declared a 3‐for‐1 stock split

	Before	After stock split
Common stock , $3 par	$ 1500000	$ 1500000	Unchanged
Additional paid in capital	6000000	6000000
Retained earnings	2325000	2325000
Total shareholders’ equity $	9825000	9825000	No effect
Shares outstanding	500000	1500000	Increase
Book value per share ($)	19.65	6.55	Decrease