Stockholders' Equity ( 10) - Assignment Example

Stockholders Equity (Assignment 10) Identify the categories and amounts of your firms capital stock. Some companies have more than one class of common stock, e.g., Class A common and Class B common. Similarly, some companies have more than one issue of preferred stock. Complete the following table for each class of your firms common stock and each class of your firms preferred stock. Clearly identify each class of stock and indicate the number of shares in 000s.Common stock AuthorizedIssuedOutstanding Par Value Per ShareClass A1,574,547.07298,622.56498,409.192$0.162.

Identify the changes in your firms equity accounts that occurred during the most recent accounting period. Not all firms will have an entry for each item while some companies will have items that are not listed here. Common stock AuthorizedEquity accountsAmount on Most Recent Balance SheetAmount at End of Prior YearNet Change in DollarsNet Change in Percent Preferred stock _ _ _ _Common stock16,437 16,401360.22%Additional paid-in capital (excess over par)488,843 474,489 14,3543.03%Deferred compensation _ _ _ _Other comprehensive income(151,241)(22,342)128,899576.

94%Retained earnings1,579,290 1,624,605 -45,315-2.79%Treasury stock _ _ _ _Other (Noncontrolling interest)114,063 111,879 2,1841.95%Total stockholders’ equity2,047,3922,205,032-157,640-7.15%3. Briefly summarize the significant changes in stockholders equity, if any, which occurred during the most recent year. The most significant change was the change in comprehensive income whereby Pentair, Inc. recorded an overwhelming percentage of 576.94. The other significant change in stockholders equity involved a negative change in the amount of total stockholders’ equity which was recorded at -7.15%. 4.

Check here if your firm had no preferred stock outstanding. If your company had preferred stock outstanding at any time during the most recent year, indicate which of the following features apply. Pentair, Inc did not have any preferred stock. a. Cumulativeb. Participatingc. Redeemabled. Convertiblee. Voting privilegesf. For characteristics a. through e. that apply to your firms preferred stock, indicate the specifics of that characteristic to your stock. For example, if it is convertible, under what terms can it be converted?5. Indicate below whether your firm had treasury stock at the end of the current period and/or at the end of the prior period.

Current Balance SheetPrior Balance SheetPercent Changea. Number of shares 102,731.25102,506.250.22%b. Dollar amount 16,43716,4010.22%c. Is it reported at its cost? (If not, ignore d.)NO _ _d. What was the average price* paid to the treasury stock? _ _ _6. Did your company issue stock, either common or preferred, during the most recent year? YesIf yes, identify the number of shares issued of each type of stock, par value (if any), and total dollar amount received from each issue. Pentair, Inc. issued 98,622.

564 shares and collected 15,779,610.24 million dollars. These were class A common stock. 7. Does your firm have any executive stock options outstanding at its most recent balance sheet date? No.If yes, by what percent would the number of common shares outstanding increase if all executive stock options were exercised? Show your clearly labeled work in the space provided below.8. Compute your firms price-earnings ratio. Price-earnings ratio = current market price of common stock/diluted earnings per share 0.16/15.81= $ 98.

80Based on the Note about P/E ratios, what does your firms price-earnings ratio tend to indicate about investors expectations regarding the companys future earnings? Pentair, Inc has a high P/E ratio and this boosts investor confidence in the firm. The ratio basically indicates that the company is expected to produce higher earnings for its shareholders. 9. Compute your firms dividend payout ratio.Dividend payout ratio = total cash dividends on common stock/net income minus preferred dividends = -78.4/ (34.2-14616.6) = 186.

00Assuming the dividend payout ratio you just computed has been fairly constant over recent years, briefly explain what this implies about the companys dividend payment policy.10. Compute your firms dividend yield ratio.Dividend yield ratio = cash dividend per share of common stock/current market price per share of common stock = 0.14/0.16 = $0.88Assuming the dividend yield ratio you just computed has been fairly constant over recent years, briefly explain what this reveals about the cash return an owner receives on his/her investment each year.

Do you believe this is a satisfactory return on a stockholders investment? What other source of return (besides dividends) do stockholders earn on their investment? Pentair, Inc. has a low dividend yield on its common stocks. Investors always make money from their investments in stocks in form of both capital gains and dividend income (). Based on calculation of Pentair’s dividend yield, it is evident that the company is unable to authorize large payouts in form of dividends to its shareholders.

A dividend yield of 0.88 implies that an investor collects 0.88 cents out of an investment of one dollar into the company. However, the yield is relatively satisfactory because it represents 88 percent returns for investors. 11. Your third memo is based on your companys investing (long-term assets) and financing (debt and equity) activities.a. What can you conclude about your companys investing policies? Discuss, using ratios when appropriate. Based on the analysis of the financial ratios of Pentair, Inc.

, I can conclude that the company has a policy of investing in activities with very high returns. This is evident from its financial ratios which include a dividend yield of 0.88, P/E of $ 98.80 and dividend payout ratio of 186.00. This is encouraging results from the performance of the company. The company also has a policy of recording high returns for its shareholders as indicated by its rewards such as the dividend yield ratio. According to the dividend yield, an investor is in a position of getting a return of 88 percent from his or her investment into the company. b. What can you conclude about your companys financing activities?

Discuss, using ratios when appropriate. Pentair’s financing activities have been rewarding. This is because the company has managed to record very high returns in terms of dividends to investors. The company has managed to issue a whooping dividend of 0.88. However, the company has recorded a negative cash flow from financing activities because the net income minus preferred dividends figure was negative. There is an urgent for the company to consider reducing the amount of preferred stock so as to record a positive value in net income less preferred dividend. c. What new insights do you have relative to your assessment of your company?

Discuss whether or not you are now more favorably impressed with your company. As stated earlier on, the company should consider reducing the amount of preferred stock because it is affecting the net income figure. It is important for the company to improve its cash flows from operating activities in order to finance its operations rather than relying on the issuance of preferred stock. However, I am generally impressed with the performance of Pentair, Inc. because of its positive financial ratios especially the dividend yield, price-earnings, and dividend payout ratios.

Reference Nikolai, L. (2009). Intermediate Accounting. Chicago: Cengage Learning.