Dividend coverage ratios from net income and FCF CFA Flashcards - Medical Study Cards
Master Dividend coverage ratios from net income and FCF with Oncourse flashcards. These spaced repetition flashcards are designed for medical students preparing for NEET PG, USMLE Step 1, USMLE Step 2, MBBS exams, and other medical licensing examinations.
Dividend coverage ratios from net income and FCF Flashcard Deck - 10 Cards
Flashcard 1: Factors that affect dividend policy?
Answer: - investment opportunities (availability of positive NPV opps)
- expected volatility of future earnings (payout targeted to long-run sustainable earnings)
- financial flexbility (firms with excess cash may stock repurchase)
- tax considerations)flotation costs (higher = lower dividend payout)
- contractual and legal restriction
- impairment of capital rule: legal requirement that dividends paid cannot equal or be greater than retained earnings
- debt covenants: designed to proect bondholders
Flashcard 2: Dividend payout ratio =
Answer: dividends / net income\
high ratio indicates dividend cut
Flashcard 3: after tax cost of funds
Answer: \= (after-tax cost of borrowing)(shares repurchased)(buyback share price)
Flashcard 4: number of treasury shares =
Answer: \= assumed proceeds / average share price during reporting period
Flashcard 5: Share repurchase methods
Answer: - open market transactions
- fixed-price tender offer: buy fixed # of shares at premium (fastest process)
- Dutch auction: range of prices, identify minimum clearing price, the price of last offer accepted (highest accepted bid price) is price paid
- direct negotiation: purchase from major shareholder, usually at discount
Flashcard 6: Tax aversion theory?
Answer: investors prefer not to receive dividends due to higher tax rates than capital gains
Flashcard 7: 5 types of dividends
Answer: 1. regular cash dividends
2. special dividends
3. liquidating dividend: paid when part or all of firm is sold or when dividends in excess of cumulative retained earnings are paid
4. stock dividend: more shares, increase stock's float
5. stock splits: like stock dividends but larger in size
Flashcard 8: Stock dividends & splits affect on capital structure?
Answer: no affect on capital structure or ratios
- stock dividend: decrease in retained earnings offset by increase in contributed capital
- stock split: no affect on book value of equity or tax basis for shareholders
Flashcard 9: Effects of repurchasing shares using debt
Answer: - less of an increase in EPS than using cash
- EPS will increase if the after-tax funding cost is less than the earnings yield
Flashcard 10: Sustainable growth rate. SGR =
Answer: \= b\*ROE\
b: retention rate
Keywords: Dividend coverage ratios from net income and FCF flashcards, medical flashcards, NEET PG preparation, USMLE Step 1 flashcards, Anki alternative, spaced repetition medical, Oncourse flashcards
