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Gainesboro Machine T ools Corporation

Gainesboro Machine T ools Corporation . HAU-PING HUANG: 101355005, GIN TSENG: 101355074, MASASHI YAGISAWA: 101355071, ALAN SHIH: 102363110, JENNIFER CHAN: 102363105, WEILAI WONG: 102363123. Introduction. In recent years, Gainesboro keeps losing money.

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Gainesboro Machine T ools Corporation

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  1. Gainesboro Machine Tools Corporation HAU-PING HUANG: 101355005, GIN TSENG: 101355074, MASASHI YAGISAWA: 101355071, ALAN SHIH: 102363110, JENNIFER CHAN: 102363105, WEILAI WONG: 102363123

  2. Introduction

  3. In recent years, Gainesboro keeps losing money. • In 2000-2002, dividends had exceed earnings. • The dividends were decreased in 2003. • In the first two quarters of 2005, no dividend was paid. • The board promised to resume payment of dividend as soon as possible. Background Gainesboro was founded in 1923. Manufacture machine parts. In 1980s, entered CAD/CAM industry.

  4. Question • In the 3rd quarter, storm Katrina happened in USA. • The stock market spiraled downward. Gainesboro’s stock fell by 18%. • CFO want to show signal confidence of the company as well as other opportunistic reasons, and want to let the stock price go up. • How to do? • 1. Use company funds to pay shareholder dividends. • 2. Use company funds to buy back stock.

  5. Dividend policy

  6. BCG Matrix • “Question Marks” or “Stars” - Invest • “Cash Cows” - Pay dividends

  7. Gainesboro’s Position? • Exhibit 6

  8. Gainesboro’s Position? • Exhibit 6

  9. Gainesboro’s New Goal • Released highly expected products (e.g. the Artificial Workforce series) • Turning point of positioning “Question Marks” • Suggest Zero-dividend policy

  10. Causing Skeptical Sight? • Recent trend; • Corporation with Zero-dividend policy is seen as a technologically advanced firm • Fewer firms distribute dividend year by year • This anxiety can be cured by corporate image advertising

  11. Stockholder Ratio • Exhibit 4

  12. External Factors • Two strong competitors have been developing comparable products and would probably introduce them within the next 12 months • Should invest on their new product line as much as possible

  13. Expected Growth Rate of Sales • Exhibit 7

  14. Unbalance between Stockholders • This might arouse a conflict between stockholders because of their different preferences • Convincible and able to keep balance by means of Stock Repurchase

  15. StockRepurchase

  16. Prosand cons ofstock repurchaseThe Gainesboro’s benefit:1.Boost stock price2.Satisfy the shareholders 3.Optimize the structure of shareholders4.Obtain capital gainDisadvantage: their total equity will go down and thus Debt to Equity Ratio goes up.But their ratio is not too bad so stock repurchase will not cause a big problem.

  17. Image Advertising and Name Change

  18. Name Change Recommendation of name change to “Gainesboro Advanced Systems International, Inc” Reclassify the so-called traditional mature/decline stage into a growth stage Cost $10 million, but the benefit will outweigh the cost in the long-run by obtaining more growth-oriented, and long term investors.

  19. Conclusion • The combination of • Zero-dividend policy • Repurchase of shares • Name change Will maximize the benefit of Gainesboro in what it is trying to achieve as a newly growth company

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