You have just obtained financial information for the past 2 years for Bridgewate
ID: 2626118 • Letter: Y
Question
You have just obtained financial information for the past 2 years for Bridgewater Equine Corporation. Answer the following questions.
How can you explain the large increase in dividends in 2007?
Bridgewater Equine Corporation: Income Statements for Year Ending
December 31 (Millions of Dollars)
2007 2006
Sales $1,200.0 $1,000.0
Operating costs excluding depreciation 1,020.0 850.0
Depreciation 30.0 25.0
Earnings before interest and taxes $ 150.0 $ 125.0
Less interest 21.7 20.2
Earnings before taxes $ 128.3 $ 104.8
Taxes (40%) 51.3 41.9
Net income available to common stockholders $ 77.0 $ 62.9
Common dividends $ 60.5 $ 4.4
Assets
Cash and equivalents $ 12.0 $ 10.0
Short-term investments 0.0 0.0
Accounts receivable 180.0 150.0
Inventories 180.0 200.0
Total current assets $372.0 $360.0
Net plant and equipment 300.0 250.0
Total assets $672.0 $610.0
Liabilities and Equity
Accounts payable $108.0 $90.0
Notes payable 67.0 51.5
Accruals 72.0 60.0
Total current liabilities $247.0 $201.5
Long-term bonds 150.0 150.0
Total liabilities $397.0 $351.5
Common stock (50 million shares) 50.0 50.0
Retained earnings 225.0 208.5
Common equity $275.0 $258.5
Total liabilities and equity $672.0 $610.0
Explanation / Answer
The increase in sales and consequently in the net income .. (as well as accounts receivables) coupled with a decrease in inventory gives cash flow to the company and hence, it can be distributed as dividends.
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