Question

1. a) Explain how the stock price can rise in the future while the dividend remains constant?(b) What is the ultimate objective of the credit analyst; and how does convertible debt relate to this issue?

2.Elaborate on how the “unrecognized” value of specific assets identified in the financial statements can be the basis of a method of evaluating a company’s stock? Give an illustration using the example of the oil reserves.

3.What does the account labeled “Deferred Income Taxes” represent; and what does it reflect? b) What role does “bait and switch” play in financial statement analysis? c) How are equity valuation models analogous to the yield-to-maturity calculation for a bond?

Answer 1

?1.

?a) Dividends are periodic cash payments in by the company to its sharholders.For distribution of dividends, a company must earn distributable profits from which actual payment of dividends will be made. So in times of increasing profits, the company will maintain a fixed amount of profits to its shareholders consistently even after increasing profits which will lead to increase in the stock price but with constant dividends.

Also when the company is not yeilding high profits but a reasonable amount of profits which leads to a little-constant dividend yield, but the company plans to invest further or take on some projects, etc.. which is going to yeild more profits in future, will attract more stockholders interest which in turn will increase the value or price of stock in market with increasing demand keeping the dividend yet constant.

3. Deferred income tax is a liability that arises from difference in the accounting method of a particular company, from the point of view of law. Which means that accordig to the tax law, total liable tax on income by a company may not suffice to total tax expense reported. This accrues more tax liability over the difference between accounting companys and tax law.