Question

In: Finance

Key words and Definitions Payout policy – the firm’s typical method of distributing cash to shareholders....

Key words and Definitions

Payout policy – the firm’s typical method of distributing cash to shareholders.

Dividend signaling – the theory that a firm’s dividend policy provides information to stakeholders.

SEC – the Securities and Exchange Commission is the federal government entity charged with protecting investors and with financial oversight of public firms and the financial markets.

Summary: Key Points in the Article.

Kraft Heinz shares were down by as much as 20% after the market closed. The firm wrote down the value of both Kraft and Oscar Mayer brands.by $15 billion after posting a $12.6 billion loss. In addition, the firm slashed dividends from 62.5 cents a share to 40 cents a share.

The dividend cut will allow the firm to “cut debt faster, improve the balance sheet” and allow Kraft Heinz to sell some business units. The company also announced the Securities and Exchange Commission was investigating various vendor relationships. Kraft Heinz stated it was fully cooperating with the investigation and the company launched an internal review of its procurement procedures.

Thinking Critically Questions:

1. What signal does a dividend cut send?

2. Why did Kraft Heinz cut dividends?

3. Why is Kraft Heinz selling some business units?

Solutions

Expert Solution

The above questions can be answered as follows:

1. The Dividend cut sends out the signal, that the company is making losses and is currently not able to pay the Dividend at 62.5 cents/share as before. This maybe due to the lack of fund in the company due to the loss occurred in the current year.

The Signal for the shareholder will be that the company is not doing well in the current year and therefore there have received a dividend cut of 22.5 cents/share. This may cost the company to loose faith of its stockholders and they might start selling off their shares.

2. Kraft Heinz cut dividends this year, as the company had occurred a Business loss of $12.6 Billions. Also, because of their market value going down, they have lost brand value of the company, so in order to manage the cashflow and Balance Sheet of the company, it decided to cut the Dividend payouts.

3. The company has occurred a loss of $15 Billion and the Market Value of the company has reduced by 20%, this indicates that the company is not doing well and is not able to manage the business properly. Therefore, it is planning on selling the business units, so that they can be managed by different efficent companies in the market.


Related Solutions

Explain how investors react to changes in a company’s dividend payout policy. Discuss what a firm’s...
Explain how investors react to changes in a company’s dividend payout policy. Discuss what a firm’s payout policy indicates about the financial status of a company. Discuss how taxes impact an investor’s desire for dividends. In the long-term, how does a company’s payout policy impact the value of an investor’s portfolio (disregarding taxes)?
Explain how investors react to changes in a company’s dividend payout policy. Discuss what a firm’s...
Explain how investors react to changes in a company’s dividend payout policy. Discuss what a firm’s payout policy indicates about the financial status of a company. Discuss how taxes impact an investor’s desire for dividends. In the long-term, how does a company’s payout policy impact the value of an investor’s portfolio (disregarding taxes)? Please show work
What are the four key factors in a firm’s credit policy? How would a relaxed policy...
What are the four key factors in a firm’s credit policy? How would a relaxed policy differ from a restrictive policy? Give examples of how the four factors might differ between the two policies. How would the relaxed versus the restrictive policy affect sales? Profits?
Compare and contrast share dividend with cash dividend used by firms in their payout policy.
Compare and contrast share dividend with cash dividend used by firms in their payout policy.
Write the Policy Responses in New Zealand (~600 words) Outline the key fiscal and monetary policy...
Write the Policy Responses in New Zealand (~600 words) Outline the key fiscal and monetary policy actions, respectively, of New Zealand against the COVID-19 shocks(already outlined below) and use appropriate macroeconomic models and theories covered in this course to explain their expected impacts. Discuss any limitations of these policy actions. TIPS: ⮚ If there are many policy actions, you could list all of them but focus on the key ones for discussion. ⮚ The government may take multiple actions (e.g....
Write the Policy Responses in New Zealand (~600 words) Outline the key fiscal and monetary policy...
Write the Policy Responses in New Zealand (~600 words) Outline the key fiscal and monetary policy actions, respectively, of New Zealand against the COVID-19 shocks, and use appropriate macroeconomic models and theories covered in this course to explain their expected impacts. Discuss any limitations of these policy actions. TIPS: ⮚ The IMF Policy Tracker records the policy responses to COVID-19 by country. ⮚ If there are many policy actions, you could list all of them but focus on the key...
3. Dividend policy A firm’s value depends on its expected free cash flow and its cost...
3. Dividend policy A firm’s value depends on its expected free cash flow and its cost of capital. Distributions made in the form of dividends or stock repurchases impact the firm’s value and the investors in different ways. Suppose a firm generates a lot of cash but has limited investment opportunities. Is this stock more likely to be a utility stock or a technology stock? In addition, is the stock more likely to provide a high or low dividend yield?...
Describe (120–150 words) the typical inputs for a purchasing sub-system, payroll sub-system and cash sub-system. Thank...
Describe (120–150 words) the typical inputs for a purchasing sub-system, payroll sub-system and cash sub-system. Thank you
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT