Evaluation Of CAPM And Dividend Policy For Commonwealth Bank And BHP Billiton

Particulars

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

Value

Expected return

12.00%

Weight A

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

(12%-17.1%) / (9.80%-17.10%)

Weight A

69.86%

Weight B

1 – 69.86%

Weight B

30.14%

Variance

(69.86%^2*318) + (30.14%^2*269) + (2*69.86%*30.14%*80)

Variance

 213.33

Stdev

SQRT(213.33)

Stdev

 14.61

CAPM Model Evaluation

Particulars

Value

Expected return

12.00%

Weight A

(12%-15%) / (9.80%-15%)

Weight A

57.69%

Weight M

1 – 57.69%

Weight M

42.31%

Variance

(57.69%^2*318) + (42.31%^2*80) + (2*57.69%*42.31%*56)

Variance

 147.50

Stdev

SQRT(147.50)

Stdev

 12.14

Particulars

Value

Expected return

12.00%

Weight B

(12%-5.6%) / (17.1%-5.6%)

Weight B

55.65%

Weight F

1 – 55.65%

Weight F

44.35%

Variance

(55.65%^2*269) + (44.35%^2*0) + (2*55.65%*44.35%*0)

Variance

 83.31

Stdev

SQRT(83.31)

Stdev

 9.13

Particulars

Value

Expected return

12.00%

Weight M

(12%-5.6%) / (15%-5.6%)

Weight M

68.09%

Weight F

1 – 68.09%

Weight F

31.91%

Variance

(68.06%^2*80) + (31.91%^2*0) + (2*68.09%*31.91%*0)

Variance

 37.08

Stdev

SQRT(37.08)

Stdev

 6.09

Particulars

Value

Beta A

0.7

Beta B

1.2

Risk free rate

5.60%

Market return

15%

Market premium

9.400%

CAPM A

5.60%+(0.7*9.4%)

CAPM A

12.18%

CAPM B

5.60%+(1.2*9.4%)

CAPM B

16.88%

From the overall evaluation of the above table the returns expected by the company with the help of CAPM model can be identified. In addition, the overall CAPM returns of Asset A is relatively higher than the actual returns of the asset. This indicates that the expected returns of the company are relevantly higher, which will increase the overall return from investment. Moreover, the CAPM expected return of asset B is relevantly lower, than the actual returns provided by the company. This indicates that the company’s overall returns are higher than the expected returns provided by the CAPM value. In this context, Novak (2015) mentioned that with the help of CAPM value overall estimated retunes from an investment could be identified.

c

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Net profit after tax

           3,959

           4,497

           4,822

         4,753

           5,680

           6,410

           7,106

           7,693

           8,650

         9,084

          9,243

         9,952

Earnings per share

               308

               345

               363

            329

               368

               411

               449

               478

               534

            557

              542

            578

Dividend per share

               224

               256

               266

            228

               290

               320

               334

               364

               401

            420

              420

            429

Dividend pay-out ratio

73%

74%

73%

69%

79%

78%

74%

76%

75%

75%

77%

74%

BHP Billiton

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Net profit after tax

         10,534

         13,496

         15,962

         6,338

         13,009

         23,946

         15,532

         11,075

         15,224

         2,878

        (6,207)

         6,222

Earnings per share

               173

               230

               275

            106

               229

               429

               290

               204

               257

               66

            (120)

            111

Dividend per share

                 32

                 39

                 56

               82

                 83

                 91

               110

               114

               118

            124

                78

               54

Dividend pay-out ratio

18%

17%

20%

78%

36%

21%

38%

56%

46%

189%

-65%

49%

From the overall evaluation of above data, the dividend policy of Commonwealth Bank and BHP Billiton can be identified. In addition, the evaluation indicates that the currency dividend policy of BHP Billiton is mainly stable, where it provides more than 50% of the EPS as dividend pay-out ratio. Moreover, the company relevantly provides dividends pay-out ratio in the range of 15% to 60% (Bhp.com 2018). The company provides adequate returns to its shareholders, as and when it generates net income after tax. The company’s dividend pay-out ratio is relevantly adequate over the period.

On the other hand, the dividend policy of Commonwealth Bank is relevantly adequate, where the company has been providing stable dividends to its shareholder overt the period of 12 years. In addition, the dividend pay-out ratio of the company has been at the range of 70 to 80, which indicates the stable dividend policy maintained by the overall over the period of 12 years (Commbank.com.au 2018). Therefore, it could be understood that the company has intended to provided stable returns to its shareholder over the period of the time without changing overall dividend policy. 

The overall evaluation of calculations mainly helps in understanding the dividend pay-out ratio of the both the companies as its different in paying out dividends. The overall companies work attributes is the main reason behind the change in dividend policy adopted by the organisations. The BHP Billiton mainly has a positive outlook towards dividend policy, where the company is relevantly paying dividends in accordance with their net income. However, the company is not able to maintain the level of adequate dividend policy due to the changes in net income. However, from the overall evaluation of Commonwealth Bank the dividend policy has relevantly increased over time, which has helped in improving the level of dividends over time (Jacob and Michaely 2017).

Dividend Policy Evaluation

The main difference in dividend pay-out ratio is due to the stability in income of both companies. BHP Billiton falls under mining and petroleum industry, while the operations of Commonwealth Bank falls under financial industry. The difference in industry level is also the main reason behind the changes in dividend pay-out ratio of both the companies. The revenue and cash volatility of BHP Billiton is relevantly high, which is the main reason behind its change net income after tax. However, the stable growth in seen in Commonwealth Bank, which has allowed the company to obtain stable income overall the period of 12 years.

BHP Billiton

2015

2016

2017

Net profit after tax

2878.000

-6207.000

6222.000

Earnings per share

65.500

-120.000

110.700

Dividend per share

124.000

78.000

54.000

Dividend pay-out ratio

189.31%

-65.00%

48.78%

From the overall evaluation of above table, the change in dividend pay-out ratio of BHP Billiton can be seen on 2016, where the company paid dividends to its shareholders even after incurring loss during the period. This relevantly indicates the change in dividend policy of BHP Billiton conducted during 2016, as its dividend policy indicated that payment of dividends will only be conducted after incurring profit for the period. However, there is no dividend policy change in Commonwealth Bank, as identified from the calculations (Erickson 2017).

From the evaluation of above chart, the share price movement of BHP Billiton can be identified, which might help in understanding the impact of dividend policy change on its share valuation. The dividend policy change in 2016 has mainly helped the company to maintain higher value of its share price even after obtaining losses during the financial year. Therefore, it could be assumed that the changes in dividend policy has mainly helped the company to improve the level of returns from investment. Hence, the share price movement compliments the decision regarding the changes in dividend policy obtained by the organisation (Baker and Jabbouri 2017). 

Reference and Bibliography:

Baker, H.K. and Jabbouri, I., 2017. How Moroccan institutional investors view dividend policy. Managerial Finance43(12), pp.1332-1347.

Bhp.com. (2018). [online] Available at: https://www.bhp.com/-/media/documents/investors/annual-reports/2017/bhpannualreport2017.pdf [Accessed 19 Apr. 2018].

Commbank.com.au. (2018). Shareholders – Financial information – 2004-2010 Annual reports – Commonwealth Bank Group. [online] Available at: https://www.commbank.com.au/about-us/shareholders/shareholder-information/2004-2010-annual-reports.html [Accessed 19 Apr. 2018].

Erickson, M.J., 2017. The Relation Between Firm Dividend Policy and the Predictability of Cash Effective Tax Rates.

Jacob, M. and Michaely, R., 2017. Taxation and dividend policy: The muting effect of agency issues and shareholder conflicts. The Review of Financial Studies30(9), pp.3176-3222.

Market Index. (2018). S&P/ASX 50 – Shares Prices & Charts. [online] Available at: https://www.marketindex.com.au/asx50 [Accessed 19 Apr. 2018].

Novak, J., 2015. Systematic risk changes, negative realized excess returns and time-varying CAPM betaFinance a Uver65(2), p.167.

Ofori?Sasu, D., Abor, J.Y. and Osei, A.K., 2017. Dividend policy and shareholders’ value: evidence from listed companies in Ghana. African Development Review29(2), pp.293-304.

Evaluation Of CAPM And Dividend Policy For Commonwealth Bank And BHP Billiton

Particulars

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

Value

Expected return

12.00%

Weight A

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

(12%-17.1%) / (9.80%-17.10%)

Weight A

69.86%

Weight B

1 – 69.86%

Weight B

30.14%

Variance

(69.86%^2*318) + (30.14%^2*269) + (2*69.86%*30.14%*80)

Variance

 213.33

Stdev

SQRT(213.33)

Stdev

 14.61

CAPM Model Evaluation

Particulars

Value

Expected return

12.00%

Weight A

(12%-15%) / (9.80%-15%)

Weight A

57.69%

Weight M

1 – 57.69%

Weight M

42.31%

Variance

(57.69%^2*318) + (42.31%^2*80) + (2*57.69%*42.31%*56)

Variance

 147.50

Stdev

SQRT(147.50)

Stdev

 12.14

Particulars

Value

Expected return

12.00%

Weight B

(12%-5.6%) / (17.1%-5.6%)

Weight B

55.65%

Weight F

1 – 55.65%

Weight F

44.35%

Variance

(55.65%^2*269) + (44.35%^2*0) + (2*55.65%*44.35%*0)

Variance

 83.31

Stdev

SQRT(83.31)

Stdev

 9.13

Particulars

Value

Expected return

12.00%

Weight M

(12%-5.6%) / (15%-5.6%)

Weight M

68.09%

Weight F

1 – 68.09%

Weight F

31.91%

Variance

(68.06%^2*80) + (31.91%^2*0) + (2*68.09%*31.91%*0)

Variance

 37.08

Stdev

SQRT(37.08)

Stdev

 6.09

Particulars

Value

Beta A

0.7

Beta B

1.2

Risk free rate

5.60%

Market return

15%

Market premium

9.400%

CAPM A

5.60%+(0.7*9.4%)

CAPM A

12.18%

CAPM B

5.60%+(1.2*9.4%)

CAPM B

16.88%

From the overall evaluation of the above table the returns expected by the company with the help of CAPM model can be identified. In addition, the overall CAPM returns of Asset A is relatively higher than the actual returns of the asset. This indicates that the expected returns of the company are relevantly higher, which will increase the overall return from investment. Moreover, the CAPM expected return of asset B is relevantly lower, than the actual returns provided by the company. This indicates that the company’s overall returns are higher than the expected returns provided by the CAPM value. In this context, Novak (2015) mentioned that with the help of CAPM value overall estimated retunes from an investment could be identified.

c

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Net profit after tax

           3,959

           4,497

           4,822

         4,753

           5,680

           6,410

           7,106

           7,693

           8,650

         9,084

          9,243

         9,952

Earnings per share

               308

               345

               363

            329

               368

               411

               449

               478

               534

            557

              542

            578

Dividend per share

               224

               256

               266

            228

               290

               320

               334

               364

               401

            420

              420

            429

Dividend pay-out ratio

73%

74%

73%

69%

79%

78%

74%

76%

75%

75%

77%

74%

BHP Billiton

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Net profit after tax

         10,534

         13,496

         15,962

         6,338

         13,009

         23,946

         15,532

         11,075

         15,224

         2,878

        (6,207)

         6,222

Earnings per share

               173

               230

               275

            106

               229

               429

               290

               204

               257

               66

            (120)

            111

Dividend per share

                 32

                 39

                 56

               82

                 83

                 91

               110

               114

               118

            124

                78

               54

Dividend pay-out ratio

18%

17%

20%

78%

36%

21%

38%

56%

46%

189%

-65%

49%

From the overall evaluation of above data, the dividend policy of Commonwealth Bank and BHP Billiton can be identified. In addition, the evaluation indicates that the currency dividend policy of BHP Billiton is mainly stable, where it provides more than 50% of the EPS as dividend pay-out ratio. Moreover, the company relevantly provides dividends pay-out ratio in the range of 15% to 60% (Bhp.com 2018). The company provides adequate returns to its shareholders, as and when it generates net income after tax. The company’s dividend pay-out ratio is relevantly adequate over the period.

On the other hand, the dividend policy of Commonwealth Bank is relevantly adequate, where the company has been providing stable dividends to its shareholder overt the period of 12 years. In addition, the dividend pay-out ratio of the company has been at the range of 70 to 80, which indicates the stable dividend policy maintained by the overall over the period of 12 years (Commbank.com.au 2018). Therefore, it could be understood that the company has intended to provided stable returns to its shareholder over the period of the time without changing overall dividend policy. 

The overall evaluation of calculations mainly helps in understanding the dividend pay-out ratio of the both the companies as its different in paying out dividends. The overall companies work attributes is the main reason behind the change in dividend policy adopted by the organisations. The BHP Billiton mainly has a positive outlook towards dividend policy, where the company is relevantly paying dividends in accordance with their net income. However, the company is not able to maintain the level of adequate dividend policy due to the changes in net income. However, from the overall evaluation of Commonwealth Bank the dividend policy has relevantly increased over time, which has helped in improving the level of dividends over time (Jacob and Michaely 2017).

Dividend Policy Evaluation

The main difference in dividend pay-out ratio is due to the stability in income of both companies. BHP Billiton falls under mining and petroleum industry, while the operations of Commonwealth Bank falls under financial industry. The difference in industry level is also the main reason behind the changes in dividend pay-out ratio of both the companies. The revenue and cash volatility of BHP Billiton is relevantly high, which is the main reason behind its change net income after tax. However, the stable growth in seen in Commonwealth Bank, which has allowed the company to obtain stable income overall the period of 12 years.

BHP Billiton

2015

2016

2017

Net profit after tax

2878.000

-6207.000

6222.000

Earnings per share

65.500

-120.000

110.700

Dividend per share

124.000

78.000

54.000

Dividend pay-out ratio

189.31%

-65.00%

48.78%

From the overall evaluation of above table, the change in dividend pay-out ratio of BHP Billiton can be seen on 2016, where the company paid dividends to its shareholders even after incurring loss during the period. This relevantly indicates the change in dividend policy of BHP Billiton conducted during 2016, as its dividend policy indicated that payment of dividends will only be conducted after incurring profit for the period. However, there is no dividend policy change in Commonwealth Bank, as identified from the calculations (Erickson 2017).

From the evaluation of above chart, the share price movement of BHP Billiton can be identified, which might help in understanding the impact of dividend policy change on its share valuation. The dividend policy change in 2016 has mainly helped the company to maintain higher value of its share price even after obtaining losses during the financial year. Therefore, it could be assumed that the changes in dividend policy has mainly helped the company to improve the level of returns from investment. Hence, the share price movement compliments the decision regarding the changes in dividend policy obtained by the organisation (Baker and Jabbouri 2017). 

Reference and Bibliography:

Baker, H.K. and Jabbouri, I., 2017. How Moroccan institutional investors view dividend policy. Managerial Finance43(12), pp.1332-1347.

Bhp.com. (2018). [online] Available at: https://www.bhp.com/-/media/documents/investors/annual-reports/2017/bhpannualreport2017.pdf [Accessed 19 Apr. 2018].

Commbank.com.au. (2018). Shareholders – Financial information – 2004-2010 Annual reports – Commonwealth Bank Group. [online] Available at: https://www.commbank.com.au/about-us/shareholders/shareholder-information/2004-2010-annual-reports.html [Accessed 19 Apr. 2018].

Erickson, M.J., 2017. The Relation Between Firm Dividend Policy and the Predictability of Cash Effective Tax Rates.

Jacob, M. and Michaely, R., 2017. Taxation and dividend policy: The muting effect of agency issues and shareholder conflicts. The Review of Financial Studies30(9), pp.3176-3222.

Market Index. (2018). S&P/ASX 50 – Shares Prices & Charts. [online] Available at: https://www.marketindex.com.au/asx50 [Accessed 19 Apr. 2018].

Novak, J., 2015. Systematic risk changes, negative realized excess returns and time-varying CAPM betaFinance a Uver65(2), p.167.

Ofori?Sasu, D., Abor, J.Y. and Osei, A.K., 2017. Dividend policy and shareholders’ value: evidence from listed companies in Ghana. African Development Review29(2), pp.293-304.

Essay Writing Service Features

  • Qualified Writers
  • Flexible pricing
  • Plagiarism-free papers
  • Anonymity
  • Timely delivery
  • 24/7 customer support

Our Experience

No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
free-features

Free Features

Free revision policy

$10
Free

Free bibliography & reference

$8
Free

Free title page

$8
Free

Free formatting

$8
Free

How Our Essay Writing Service Works

tab-image

First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.

Complete the order form
tab-image

Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.

Writer’s assignment
tab-image

As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.

Completing the order and download

Need anything written?

Use contact for the order

error: Content is protected !!
Live Chat+1 763 309 4299EmailWhatsApp

Order your essay today and save 30% with the discount code Contact