Equity Analysis Report - Essay Example

Adobe Systems Equity Finance In the last five years, Adobe System Inc. has not had a seasoned equity offering. This has only been evident with other companies like PointCast and News Corp. (Source 10-K report) 2. Dividends and Repurchases a) Adobe pays dividends and the following information gives the dividends that the company has paid in the last five years. (GRSP monthly files) Dividends (%) 24 15 150 1000 50000 The dividend payout ratio for the company was 0.00% b) The stock purchases for Adobe system are averaged as follows: Year 2007 2008 2009 2010 2011 Average Price 4.5 13.6 26.3 28.0 26.

9 Total payout is 99.3 c) The payout ratio which is the same as the debt ratio is as indicated on the graph above. Year 2007 2008 2009 2010 2011 Payout Ratio 18.6 24.2 32.8 36.2 35.7 In the case of Adobe System not distributing its earnings to the stockholders is definitely a good idea. Most growth companies like Adobe in the expanding era prefer not to distribute their earnings to the investors. Research indicates that the stockholders aspire that the company put back the assets in terms of their share of profit at an elevated rate.

In the case the company does not succeed in making profit on the investments, it would be a better idea for the corporation to pay out the investments in the form of dividends to shareholder. Much consideration is put on performance and efforts directed to the reinvestments by the individual shareholders. In addition, it has been established through research that reinvested earnings are crucial for profitability for investors. This is a point at which security valuations are made. 4. Information Content of Payouts and Announcement Effects (Optional Question) Looking at Adobe System’s profile, it is noted that for long the company has a habit of not paying dividends.

This puts it in a position not react in the case of any market shift. The Capital Asset Pricing Model focuses on the expected returns of security. This must be equal to the rate on risk free security in addition to a risk premium. Adobe System on the contrary has its expected returns not beating the need returns. As such, the company does not undertake investment which is why it has no reaction based on the changes in dividends. Essentially for Adobe, there is no data on market pricing and the purchases.

The company relies on providing graze period for its clients. It has a market shift in terms of clients purchasing Creative Suite 5.5 component between particular dates. This essentially leads to them being given complementary upgrades toll free whenever there is an upgrade. However, it is arguable without evidence that whenever there are announcements in the market purchases, there must be an increase in the market prices of Adobe System products. Work Cited: Dalhouse, Deborah and Clemson University Mass Communications.

Web Site Content Management Systems: Selection and Usage at Land-grant Universities. New York: ProQuest, 2008