Financial Reporting, Financial Statement Analysis, and Valuation, Essay Example

Hi Roni, Thank you for the solid and interesting entry. In your post, you have noted that the dividends (payout ratios) provide a deeper insight into the amount of money stakeholders take home as earning. As such, it is plausible to affirm that a higher payout ratio is an indication of financial stability as well as wide profit margins. It is interesting to note that you have adopted a plausible option for calculating the payout ratios. The approach is not only simple, but it also provides a deeper perspective on the liquidity of the company. From your calculations, it is evident that the payout ratio for Colgate was 62 percent. According to Wahlen,  Baginski, and Bradshaw (2014), an ideal payout ration falls in between 55 to 75 percent since it indicates that an organization is giving out more than 50 percent of its dividends as earning. Such a scenario means that in the year 2018, Colgate had limited retained earnings. In this regard, it is plausible to affirm that such a financial standing is not sustainable since it leaves limited space for the company to grow, especially in the long run.

Hi Joseph, I agree with you that return on investments, commonly referred to as ROE gives a deeper insight into the extent at which the dollar invested by the stakeholder generates profit. In this case, also, you have adopted a plausible approach to calculating the ROE. From the computations, it is evident that in the year 2018, Colgate’s ROE was 23414.63 percent. On this account, it is reasonable to argue that the stakeholders of the organizations made huge returns relative to their investments. Although a high ROE is recommendable, it is important to ensure that the organization adopts strategies, which will foster sustainable growth.

Reference

Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2014). Financial reporting, financial statement analysis, and valuation. Nelson Education.