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Hello, ….so I’m looking at the answer to a question in which the share capital dropped from 2008 to 2009 from 2,100m to 1,900m and the earning to share holders increased from $205 to $230 .
The comment about the possible reason for the movement was “There was a 12% earnings growth in 2009 . The Co. used some of its cash to buy back ord shares. This is possibly due to shareholders being offered a choice between a cash and a scrip dividend”.
Whats confusing me is this, ..if the company already has lets say 100 shares and the share holders are given a choice between cash or scrip div., if they choose scrip their shares would increase but if they dont then the shares would not go below 100 since they would be getting cash. As such , i dont understand why their reason for a decrease in share capital would be what was stated above.If however there was an increase in shares i would not have a problem. Please explain, thanks.
Buying back shares on its own would certainly reduce share capital. However, as you say, buying back shares and then giving the shares instead of a dividend would not reduce the share capital.
If you tell me where to find the particular question then maybe there is something else mentioned, but without seeing it I cannot really say any more (except that as it stands it does seem a strange thing to have written).
The question is KJI, its in the BPP kit in the cost of capital section. (i cant even find a link for a soft copy version or else I would have posted it since I know you don’t usually have that text.)
I did manage to find that question, and I agree with you – that bit about scrip dividends is not correct. However the rest of what they have written seems OK.
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