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108 PART 2 • STRATEGY FORMULATION

More than 10 percent of S&P 500 companies cut their dividend payout in 2009. The
record number of dividend cuts and dividend suspensions by companies continues. A total
of 68 S&P 500 companies cut $40.61 billion in dividend payout money in 2008, but most
of these cuts were among banks and brokerage firms. Stock prices for firms fell faster and
farther in 2008 than did dividend payouts. Among all U.S. publicly held companies, about
225 increased their dividend payout in 2008.
Based in Stockholm, Sweden, telecom-equipment maker Ericsson recently cut its
dividend to 1.85 kronor a share, down from 2.50 kronor the year before. The firm also laid
off 5,000 employees in 2009 as its net income declined. Seagate Technology Inc. recently
cut its quarterly dividend by 75 percent as part of a restructuring and strengthening of its
balance sheet to cope with falling company demand. Seagate in 2009 laid off 2,950
employees and reduced the salaries of its top officers by as much as 25 percent.
Sherwin-Williams has a long-standing policy of paying dividends equal to 30 percent
of the prior year’s earnings. The firm followed through on this policy in 2008, paying
$1.40 per share. The maker of paint and other coatings expects to maintain that policy
again in 2009. Sherwin-Williams closed 80 of its 3,300 stores in 2008 and has a strong
relationship with Wal-Mart Stores.
The world’s largest steelmaker, ArcelorMittal, recently cut its 2009 dividend by
50 percent to 75 cents, reversing its pledge in 2008 to maintain a $1.50 dividend. Based
in Luxembourg, ArcelorMittal has been incurring quarterly billion-dollar losses in
earnings.
The New York Times Company’s board of directors suspended the firm’s dividend
payments 100 percent in early 2009 to save about $34.5 million annually. The company is
also trying to sell part of its 52-story headquarters building to raise cash. Times Company
joins a growing list of media companies that have totally suspended their dividends,
including E.W. Scripps Company, Media General Inc., and McClatchy Company.
In April 2009, IBM boosted its quarterly dividend 10 percent and added $3 billion to
its stock-buyout program. This announcement came soon after IBM lost out to Oracle in its
did to acquire Sun Microsystems Corp.
J.P. Morgan in 2009 cut its dividend by 87 percent to 5 cents per share, saving the firm
$5 billion annually. Investors were surprised at the drastic cut because J.P. Morgan was
regarded as one of the healthiest U.S. banks at the time. The firm’s stock rose 6 percent on
the news to $20.64 per share.
Wells Fargo in 2009 cut its dividend payout by 85 percent to 5 cents per share. This
move came just two months after the firm purchased troubled rival Wachovia Corp. for
$12.68 billion. Wells Fargo had paid the third largest dividend in the S&P 500 Index,
behind AT&T and Exxon Mobil.
Oracle is doing great in the global economic recession. The company issued its first
dividend ever in 2009 and posted a 2 percent revenue increase for its third quarter of fiscal
2009. Based in Redwood Shores, California, the business-software maker has $8.2 billion
in cash and generates about $8 billion in cash a year. 21 Historically, tech companies have
not issued dividends, and the few tech companies that do pay dividends, such as Microsoft
and Intel, have not cut the payouts and continue to stockpile large reserves of cash.

Basic Types of Financial Ratios
Financial ratios are computed from an organization’s income statement and balance sheet.
Computing financial ratios is like taking a picture because the results reflect a situation at
just one point in time. Comparing ratios over time and to industry averages is more likely to
result in meaningful statistics that can be used to identify and evaluate strengths and weak-
nesses. Trend analysis, illustrated in Figure 4-3, is a useful technique that incorporates both
the time and industry average dimensions of financial ratios. Note that the dotted lines
reveal projected ratios. Some Web sites, such as those provided in Table 4-5, calculate
financial ratios and provide data with charts.
Table 4-6 provides a summary of key financial ratios showing how each ratio is calcu-
lated and what each ratio measures. However, all the ratios are not significant for all indus-
tries and companies. For example, accounts receivable turnover and average collection