Abhi- Based on your team company and its latest financial statements calculate w

Question

Abhi- Based on your team company and its latest financial statements calculate whether it makes sense for your firm to buy its stock and increase its dividend payout or should use any extra cash or financing capacity to strategically expand its business.

Merck & Co. Inc. (MRK)

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Currency in USD.

13,663,000

Income Statement Get Income Statement for: View: Annual Data | Quarterly Data All numbers in thousands Period Ending Dec 31, 2015 Dec 31, 2014 Dec 31, 2013 Total Revenue 39,498,000   42,237,000   44,033,000   Cost of Revenue 14,934,000   16,768,000   16,954,000   Gross Profit 24,564,000   25,469,000   27,079,000   Operating Expenses Research Development 6,704,000   7,180,000   7,503,000   Selling General and Administrative 10,313,000   11,606,000   11,911,000   Non Recurring 619,000   1,013,000   1,709,000   Others - - - Total Operating Expenses - - - Operating Income or Loss 6,928,000   5,670,000   5,956,000   Income from Continuing Operations Total Other Income/Expenses Net (1,527,000) 11,613,000   (411,000) Earnings Before Interest And Taxes 5,401,000   17,283,000   5,545,000   Interest Expense - - - Income Before Tax 5,401,000   17,283,000   5,545,000   Income Tax Expense 942,000   5,349,000   1,028,000   Minority Interest (17,000) (14,000) (113,000) Net Income From Continuing Ops 4,442,000   11,920,000   4,404,000   Non-recurring Events Discontinued Operations - - - Extraordinary Items - - - Effect Of Accounting Changes - - - Other Items - - - Net Income 4,442,000   11,920,000   4,404,000   Preferred Stock And Other Adjustments - - - Net Income Applicable To Common Shares 4,442,000   11,920,000   4,404,000   Sign Up for a Free Trial to EDGAR Online Premium!
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Currency in USD.

Explanation / Answer

From the financial statements given above. it is clear that although the Company has issued fewer shares of common stock, it has a substantial balance in the Treasury Stock. Considering that the current year profits are way below those of the previous year. reissuance of Treasury Stock will add to the dividend expenditure, thereby further reducing the profits. Hence, the advisable solution would be to use the extra cash available for strategically expanding its business, since that will lead to increased revenues, and consequently an increase in the Net Income, in the years to come.

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