The articles I read was reported by Vancouver Sun mentioning that TD Ameritrade Holding Corporation offered its 5-cent-per-share quarterly dividend when its profit fell 27% on accounts of depressed trading volumes and low interest rates. TD Ameritrade shares slid 2.4 % to US $16.35 before market opened. Compared to last year's result, revenue was down 7% at US $ 608.8-million, and the third quarter was the slowest trading period. TD Ameritrade had started buying its share back since earlier this year, and the dividend decision signaled that the company was less likely to do an acquisition. However, that TD Ameritrade expected to obtain earnings of US 90-cents to US $1.20 per shares and maintain growth trends in 2011. Also, analysts on average predicted TD Amreritrade would earn US 23-cent per share on US$619.2-million in revenue according to I/B/E/S.
Connections:
The connections to chapter two would be how dividends are determined and announced and how they will affect the business's financial statements. In this case, the board of directors of TD Ameritrade authorized the payments of dividends by voting. TD Ameritrade's quarterly dividend is payable on December 15, and that will increase dividend payable which appears on the balance sheet. Since dividends are not expenses, they don't appear on the income statement. In order to show the dividends declared during the period, TD Ameritrade need to prepare a statement of retained earnings. Also, there is a delay between the date the dividends are declared and the date they are paid, so the cash flow statement will not be affected until the time the payment is paid. TD intended to prevent shareholders from selling off their shares by declaring dividends when profit is low. This action could imbue confidence to the outlook of the company as well as showing their economic strength to the public.
Reflection:
In my opinions, declaring dividends when profit slipped 27% was a sophisticated way of stopping shareholders selling off their shares and stablilizing the share price. If shareholders sell off their shares at the same time , the floating capital will suddenly become inadequate, resulting in tremendous financial turmoil within the company. If some financial group who favours aggressive acquisition intends to take over TD Ameritrade by collecting shares from the shareholders, TD Ameritrade will be trapped in many financial problems and other different kinds of issue. Also, the decline in profit emanated from shrinking trading volumes and low interest rate. The worldwide economic recession had a great repercussion for international economy and stock markets; it caused a shrinking trading volume. Furthermore, as the U.S. Economic recovery sputters, the interest will remain near zeros in order to stimulate economic activities. This two factors lead to a dramatic decrease in revenue. However, TD Ameritrade had demonstrated a resilience in this difficult time. From my perspective, i predict that TD Ameritrade will have a higher profit in the next fiscal year because the economy is growing back gradually and stimulating more trading.
