Prudential Financial Inc. Stockholders Equity and Balance sheet Leverage Case Study Solution
In addition to this, companies issues two Classes of shares Ordinary and preferred.Companies want to have investment through different means to perform their long term and day to day operations by comparing to the issuance of through dividends that can give maximum benefits to shareholder.
Total Market Value of Common Stock Equity:
| High | Low | |
| Fourth Quarter | 101.09 | 89.46 |
| Third Quarter | 98.71 | 84.28 |
| Second Quarter | 103.17 | 90.21 |
| First Quarter | 93.1 | 85.69 |
| Average | 99.02 | 87.41 |
| Share Price | 93.21 | |
| Market Value (million) | $41,887 | |
| Book Value (million) | $23,457 | |
| Difference (million) | $18,430 | |
The total market value of Prudential Financial Incorporation is approximately 41,887 million dollars which has been calculated by multiplying the market value of its share price to its outstanding shares. The market value of company’s shares has been calculated by taken the average of company’s all fourth quarters highest and lowest market value of shares. The above mentioned table except the average market value of company’s shares has obtained from the 2007 annual report that is easily available on company’s website.
The difference between the market value and book value of shares is due to the future growth perception of investors which might considered the highest required rate of return in future years, which might lead towards the overvaluation in market value of shares as compared to its book value of shares. Moreover, the book value is used to calculate the amount that the company might receive after selling its assets while the market value of shares represent the actual worth of the business which might be helpful for decision making such as the market penetration, development or product development, these are the strategies which used to grow the business according to the investor perception in order to maintain and increase the market value of shares as compared to its book value.
Repurchase of Treasury Stock During 2007:
| 2016 | 2017 | |
| Treasury Stock | 133,795,373 | 157,534,626 |
| Treasury Stock Repurchase in 2007 | 23,739,253 | |
| Treasury Stock Account | (7,143) | (9,693) |
| Cash Paid in 2007 for Treasury Stock | (2,550) | |
Repurchase of Treasury Stock During 2007:
| 2007 | |
| Dividends Declared | 540 |
| Dividend Payout | 14.6% |
| Dividend Yield | 1.3% |
| Net Income | 3,704 |
| Market Value of Shares (million) | 41,887 |
Other Comprehensive Income:
The amount present in front of the component of other comprehensive income is -72 which represents the other comprehensive loss in the statement of stockholders equity. As known that the other comprehensive income or loss is not a part of statement of stockholders equity but reported in the statement of comprehensive income or loss. So, the logic behind including other comprehensive income or loss in the statement of stockholders equity is because of the reason that the other comprehensive loss will decrease the shareholders wealth.
Balance Sheet Leverage:
| 2007 | 2006 | |
| Debt to Assets | 95.2% | 95.0% |
| Debt to Equity | 1971.1% | 1884.4% |
| Assets to Equity | 2071.1% | 1984.4% |
| Total Assets | 485,814 | 454,266 |
| Total Equity | 23,457 | 22,892 |
| Total Debt | 462,357 | 431,374 |
The above calculated ratios are illustrated the poor leverage position of the company because its debt is too high as compared to its equity portion. These ratios will start to decline in the upcoming year 2008 due to the financial crises because the company has taken the too much debt and will not be able to survive in 2008’s financial crisis.........
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