Question

E11-13 Selected financial information (in millions, except per-share information) is available for CIBC at October 31: 2015 2014 2013 Dividends declared and paid to common shareholders Dividends declared per common share $1,708 $ 1,523 1,567 $ 3.94 3.81 4.30 Income available to common shareholders (equals net income) 3,531 $3,131 $3,253 Common shareholders' equity $20,360 $17,588 $16,546 Market price per common share $ 88.70 $100.28 $102.89 Weighted average number of common shares 398 397 401 Instructions (a) Calculate the (1) payout, (2) dividend yield, (3) basic earnings per share, and (4) return on common shareholders' equity ratios for the common shareholders for and 2014 2015 (b) Using the information in part (a), comment on CIBC's dividend record and earnings performance over the two-year period.

Answer 1

Solution :- (a) (1) Payout Ratio :-

Payout Ratio = Dividend Paid / Net Income

	2015	2014
Dividend paid to common shareholders	$ 1708	$ 1567
Net Income	$ 3531	$ 3131
Payout Ratio	=$1708/ $3531 *100 =48.37%	= $1567/ $ 3131*100 =50.05%

(2) Dividend Yield Ratio :-

Dividend Yield Ratio = Dividend per share / Market price per share

	2015	2014
Dividend per share	$ 4.30	$ 3.94
Market price per share	$ 100.28	$ 102.89
Dividend Yield Ratio	=$4.30/ $100.28 *100 =4.29%	= $3.94/ $ 102.89*100 =3.83%

(3) Basic Earning per share :-

Basic Earning per share = Net Income / Weighted average number of common shares

	2015	2014
Net Income	$ 3531	$ 3131
Weighted average number of common shares	397	398
Basic Earning per share	=$3531/ 397 =$ 8.89 per share	= $3131/ 398 =$ 7.87 per share

(4) Return on common shareholders equity :-

Return on common shareholders equity = Net Income / Average Common shareholders Equity

	2015	2014
Net Income	$ 3531	$ 3131
Average Common shareholders Equity ( W Note 1)	$18974	$ 17067
Return on common shareholders equity	=$3531/ $ 18974 *100 = 18.61%	= $3131/ $ 17067 *100 = 18.35%

W Note 1 : Calculation of Average Common shareholders Equity

For 2015 =( 2015 Common shareholders equity + 2014 Common shareholders equity) / 2

= ($ 20360 + $17588 ) /2 = $ 18974

For 2014 =( 2014 Common shareholders equity + 2013 Common shareholders equity) / 2

= ($ 17588 + $16546 ) /2 = $ 17067

(b) Comments : CIBC Basic Earning per share has been increased from $ 7.87 per share to $ 8.89 per share which is good for the future of the company. CIBC Payout ratio has been decreased from 50.05% to 48.37% this year because CIBC net income increased by $ 400 whereas dividend paid increased by $ 141 , therefore CIBC has to pay dividind at this rate to maintain the payout ratio in the coming years.