Blaine kitchenware financial analysis
Selling stockholders may not be well informed, hence could be treated unfairly.
Investors usually consider the periodical dividend as an evaluation for a healthy company. Another challenge that BKI must address is the impact of share growth due to acquisition on the dividend payout policy.
Why or why not? Thus more the debt implies more interest and thereby more EBIT goes to the shareholders.
Similarly, the market generally regards stock buyback as a positive signal, if the company maintains a stable operation. Third, a repurchasing program would give shareholders the control on whether to retain ownership in the firm or decide to take capital gains and incur taxes.
Blaine kitchenware case solution chegg
If so, it could lead the proportional loss of shareholders value. Per this reality, we assume that the stock price of BKI in was overvalued. Question 3: Consider the following proposal for share repurchase. The above assumption is clearly unrealistic and represents a financial Utopia, if you will. Because Blaine is a public company with large portion of its shares held by conservative family members, Blaine has huge financial surplus and causes bad financial leverage. What are the primary advantages and disadvantages of such a move? In theory, the optimal capital structure for a company is the combination of debt and equity that results in the lowest weighted average cost of capital.
The answers to the questions within the case helps to summarise a possible decision for him. You are on page 1of 9 Search inside document Blaine Kitchenware, Inc.
Blaine kitchenware case spreadsheet
Even though, the company had use debt twice in the past, it was not enough as BKI had an opportunity to exploit tax benefit through adding debt. A future acquisition may increase the outstanding shares yet again and this can become a vicious cycle. The reduced or discrete dividend payout is generally viewed as a negative signal for a companys performance. Basically, management of BKI should redesign its capital structure and payout policy based on its long-term strategy, which should focus on business innovation and continuous cash flow creation capability, not just simply better financial and dividend payout ratio in short-term. What is the company WACC after the proposed share repurchase plan? Those financial statements are presented below and on the following page. It was possible that the management of BKI didnt want the market to discover its embarrassed situation in the capability to create value for shareholders in long term. Thus, Dubinski should consider whether it is a good timing to pursue stock buyback and whether buyback truly represents the best possible financial leverage strategy for BKI compared other possible strategy like special dividend and etc. On the other hand, it is possible release misleading signal to market and drive the stock price higher, deviating from its real value. For BKI, it still needs to scout for opportunities for this growth in earnings. Another challenge that BKI must address is the impact of share growth due to acquisition on the dividend payout policy.
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