Champion Road Machinery Essay

884 Words May 17th, 2013 4 Pages
Summary:
Champion Road Machinery Limited, the worlds second largest manufacturer of graders and other large machinery has been performing well above expectations and cash properly managed. A financial analysis of the Champion Road Machinery Company was performed in order to provide recommendations on the dividends distribution policy.
Decision on the Company’s dividends policy will depend on three main factors: * Current financial situation (Cash flow, Required Retained Earnings, Projected Growth, and Equity available for distribution) * Industry and main competitors’ dividends strategies * Types of shareholders and their goals and expectations from the Company
Based on the above mentioned information, our recommendation
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There is also a differences in taxes treatment between the US and Canada (see table 2). Canadian law provides for a dividend tax credit for dividends of Canadian companies and therefore dividend income will see a lower tax bill (for the Canadian investors and directors).
Arguments AGAINST dividends:
Investors have the ability to create "homemade" dividends. For example, investors looking for a steady stream of income are more likely to invest in bonds (in which interest payments don't change), rather than a dividend-paying stock (in which value can fluctuate). Based on the above data on differences in taxes treatment between the US and Canada, the US investors will observe a higher tax bill in this case as compared to Canadian investors.
Many analysts argue against dividends based on the belief that a firm that reinvests funds (rather than paying them out as dividends) there will be an increase the value of the firm as a whole and consequently increase the market value of the stock. Champion may invest in undertaking more projects or acquiring new companies and profitable assets as was seen in them acquiring previous businesses such as soil compactor and Bud Lee
Can Champion declare dividends, and if so how much per share (DPS) and total ($ amount)?
Champion can definitely declare dividends. Based on the financial numbers (see table 1) Champion has equity available for

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