This video post asks business owners and advisers two questions: 1) Is your company’s (or your clients’ companies for advisers) dividend policy a good one that is meeting the needs of its owners for current income versus capital appreciation? And 2) If not, do you need to be working on your dividend policy to improve its effectiveness?
Mercer Capital’s Travis Harms wrote a series of four whitepapers under the umbrella of Corporate Finance in 30 Minutes. In this series of white papers, Travis makes something that can sound arcane and difficult, like corporate finance, accessible for business owners and advisers. The first paper is an introduction to corporate finance for private businesses and introduces the three key questions of corporate finance that owners of private businesses face. The subsequent whitepapers address these key questions.
We continue the series today with the topic of Corporate Finance, which is about maximizing the value of a firm or business. The three parts of the corporate finance decision tree for public and private businesses are: an investment (or reinvestment decision), also called capital budgeting; the financing decision, also called capital structure; and the dividend or distribution decision. By addressing each of these decisions, corporate managers and boards determine what will be done with available cash flows. The effectiveness with which they make these decisions determines, in large measure, the success of value creation for private firms.
On Monday, July 25, 2016, Verizon announced the acquisition of the operations of Yahoo for $4.8 billion. I waited on this post because it really isn’t about Yahoo, but about lessons for closely held business owners and their advisers. In any event, that $4.8 billion value for Yahoo’s operation was a far cry from previous indications of value for Yahoo.
Two standard questions business appraisers ask clients in the management interview process include: What has been your dividend (or distribution) policy leading to the present? Now this is something of a trick question, because we can infer what the dividend policy has been in the past based on examining financial statements. What do you expect […]
Leveraged dividend recapitalizations and leveraged share repurchases are two corporate finance tools that are available to owners of private companies. These tools can be used to create liquidity outside the ownership of private businesses. Interestingly, as we will see, leveraged dividends and leveraged repurchases have very similar impacts on companies (assuming similar companies and same-sized transactions), and quite different impacts on the owners of the companies. In this post, we will illustrate the impact of a leveraged share repurchase and a leveraged dividend on the same company. This analysis will enable us to see the impact leverage has on the company and also, the different impacts the transactions have on owners.