Page 88 - Financial Statement Analysis

sub79433_ch01.qxd 4/7/08 11:21 AM Page 65

Chapter One | Overview of Financial Statement Analysis 65

e. Finally, we need to determine the stock price performance of the two companies over this period. To do that, we
need to determine cum-dividend return. Cum-dividend return is the return on a stock including cash dividends.
Colgate’s cum-dividend return over this period is 12.5% compared to 5.9% for Kimberly-Clark. For advanced
analysis that uses finance techniques, verify these numbers. Those who don’t want to do this advanced analy-
sis can merely use the cum-dividend returns’ numbers provided above. (Hint: This is advanced analysis that
covers material from finance outside the scope of this chapter and should be attempted only by those who are
conversant with finance techniques. Cum-dividend return is determined by the following formula: Cum-dividend
return for a year [(Closing stock price Dividend paid during the year)/Opening stock price] 1. For exam-
ple, Kimberly-Clark’s cum-dividend return in 1997 is [(49.31 0.96)/47.63] 1 5.5%. Using this formula,
determine the cum-dividend return for each company for every year. Then determine the compounded per-year
return over the entire period).
f. Examine all of the previous analyses and provide a commentary that compares the performance of Colgate and
Kimberly-Clark over the 1997–2006 period.

Note: This case involves extensive data analysis and should be done using Excel (or similar software). To facilitate the analysis
in Excel, the data in Exhibit 1.3 and in the table above are available in Excel format and can be downloaded from the book’s
website.