The weekly newsletter for Fed2 by ibgames

EARTHDATE: April 19, 2009

Inside Scoop page 1


DIVY DIVY DIVY... IT'S AN FO'S WOE

by Jezz

Recently, I've noticed that some factory owners seem to have misunderstood the manual with regard to paying dividends to their shareholders. Of course I'm assuming that they have read the manual because we all know that everyone does read the manual... even though they may deny it to their peers and hide their well-thumbed copies so that nobody knows they are swotting up in secret.

Anyway, I decided it was my duty to attempt to enlighten those who are confused by their company reports and are having trouble with angry shareholders.

When you look at your accounts for the last cycle you'll see something like this:

>di accounts Newbod
Widgets Inc. Accounts - Cycle Number 2
Share value: 1500ig (no change)
A total of 10000 shares have been issued
Assets: 15Mig (no change)*
Dividend: 250ig
Cash: 200Mig (+50Mig)
Income: 90Mig Expenditure: 28Mig
Profit: 61Mig (+8Mig)
Price-Earnings (P/E) ratio is 0
Price-Dividend (P/D) ratio is 6
Earnings-Dividend (E/D) ratio is 24

*All assets valued at nominal sale prices.

OK, so what does it all mean?

"Share Value" is obviously the price someone would have to pay for one of your shares.

"Assets" is the amount you would get if you sold all your factories and depots.

"Cash" is the amount in your treasury at the end of the last cycle.

"Profit" is what you made before taxes.

"Earnings" is the profit divided by the number of shares issued. For most companies that will be 10,000 shares. If you've managed to bump off one of your fins... er... I mean if one of your investors has met with a tragic accident, then you might have 9,000 shares issued instead of 10,000. That's actually good news for you later when you load a planet for obvious reasons. New companies will likely have different numbers and I'll be writing about those when they are available.

"Price" is the share value and "Dividend" is the total amount of dividends that you paid out last cycle.

When you start a new accounting cycle, the investors look at the figures for the cycle just completed and decide how happy they are about them. Anything you did two cycles ago doesn't count. There is no left-over goodwill hanging around and giving everyone warm fuzzies about your company books, I'm afraid.

If you look at your disaffection at the start of your new cycle and find that it's zero, that does NOT mean you don't have to issue a dividend for this cycle. It means that your investors were happy with what you did LAST cycle. If you don't issue one this cycle, your investors will be fedding furious next cycle and it's going to cost you several arms and legs (or equivalent) to make them happy again.

Deciding how big the dividend should be is pretty easy if you issue a dividend each week that you are a manufacturer. "Price-Dividend (P/D)" is the easiest line to look at although it's certainly not the only thing that affects disaffection. If that figure is nice and low, say around 5, your shareholders ought to be pretty happy. Just divide your share price by 5 and that's the amount your dividend should be this cycle if you're starting with very little or no disaffection and there haven't been any share sales. You can always issue another smaller dividend if it's not quite right and adjust up or down next cycle.

Repairing large amounts of disaffection because you forgot to issue a dividend, or because Financier A decided to sell your shares to Financier B and visa versa, is more tricky. The more unhappy the shareholders are, the bigger the dividends you will have to pay to repair that delicate relationship. Repairing the damage from a cycle with no dividend may well cost you at least ten times the amount you would have paid if you had issued the dividend on time. The higher your share price is when you miss a dividend, the more you'll have to pay.

Four dividends of 100ig will have less beneficial affect on your disaffection than one dividend of 400ig, so don't pussyfoot around with it. All those companies that were issuing multiple 50ig dividends before the change in the code were spending more than they had to.

Now, when someone sells your company shares the share price will drop. Investors hate when that happens. The disaffection caused by a share sale is not mended entirely by someone else buying the shares. You need to keep an eye on your disaffection level in case your financiers decide to start swapping shares around. If that does happen you will need to issue another dividend to appease the investors. If you buy your shares back from your financiers as soon as you make it to manufacturer, not only will you be robbing those financiers of the dividends they would have received, but it will also cost you more in dividends in the long run. It's a good idea to wait until just before you promote to financier to buy your shares back because as a financier you don't have to worry about disaffection.

I hope this has helped clear up some of the mysteries of the dividend. If you issue a reasonable dividend every cycle, watch for disaffection caused by share sales and generally pay attention to your company, you should have no problem.

Here is the link to the relevant page of the manual for those that have read their copy so often that the words have faded.


DISCLAIMER

The Financiers of Federation DataSpace would like to remind you that the above article is not necessarily representative of the opinion of the aforesaid Financiers. In fact, they would prefer that you completely ignore it, continue to pay out excessive dividends and suffer shareholder rebellions as often as you accumulate a decent amount of funds in your treasury. Thank you.

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