Technical interview question
Hi,
Can someone help me with this please? I cannot find it in any guide or on any site, and since I'm a sophomore I haven't gotten to this level in my classes yet.
"If a conglomerate sold off one of its units, what are five things it could do with the proceeds and how would each of them impact EPS."
I am thinking:
Issue a dividend
Buy back shares
Buy another company
Capital expenditure
Can anyone help me with what would happen to EPS in those scenarios, or share any other scenarios?
Thank you!
there's basically three things that companies do with money: 1. reinvest into the company (capex) 2. buyback stock/issue a dividend (increasing equity returns either by give back to equity holders in the form of a dividend or reducing the number of people who have access to the 'pie' of equity) 3. acquisitions (if you can achieve synergies/run this company better than the current owners)
so you're right on the main uses of money.
in terms of the EPS/how this impacts the FS, it'll differ in each scenario due to the fact that accounting profitability can be manipulated for each time period, but the main thing you have to realize is that a 'good' management will choose whichever of these 3 scenarios that can give the equity holders the greatest return.
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