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Quick question about calculating dividend payments
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Bumblefck
Kerensky Initiatives
#1 - 2016-03-08 15:08:41 UTC  |  Edited by: Bumblefck
*Disclaimer*

I am pretty terrible with calculating formulas and things like that, and whenever I try and sort out the calculation chains in my head required to figure out how much to pay in dividends, I always get confused - so I'm reaching out to more experienced people for advice :)


Say I want to issue an IPO. I calculate the current share value by (current NAV/number of extant shares) (I assume), and then I write up my proposal, people buy shares, etc etc. I basically get that phase of the operation.

What has me a little bit confused is how to calculate the returns to investors. As I see it, there are potentially two options for returning profits to investors:


a) A fixed amount, per share owned by investors. I guess this might increase over time, as the corporate NAV rises and so too do the value of the shares

or

b) A percentage of the profits, and then redistributed back to investors. This would probably fluctuate depending on trading conditions, but would I always - for example - put 50% (say, or whatever is agreed on the IPO write-up) of the profits in the Master Wallet division and then disburse the dividends to all concerned.

I'm assuming option b) is how most EVE IPOs go, but I just wanted to put some feelers out to see what people generally use. What I'm particularly interested in are the private ventures that never see the light of the forums (for example, intra-alliance investment programs), and how profit redistribution is managed.


TYIA for your advice and help, and I accept Jerry's 20bn pledge in advance. Bear

Perfection is a dish best served like wasabi .

Bumble's Space Log
Magnu Stormhawk
#2 - 2016-03-08 16:04:07 UTC  |  Edited by: Magnu Stormhawk
There have been various iterations of the same thing in the past, but your summary of a percentage split of the profits issued as a dividend is pretty much the norm if it is a proper equity share setup.

For a proper equity issue, the issued shares would have a right to x% of the profit distributions and x% of the NAV.

When you make a profit, it is either distributed to all the shareholders including yourself, or it is held back and reinvested into the business. Usually its a hybrid of the two. In your example you are issuing 50% of the profit as a dividend. So 50% of the increase in value is held back. The shares then should go up in value because they now have a right to x% of the increased NAV. On liquidation or buyback, the share value is determined by the NAV at that point.

Anything other than this is not really true equity, but it can work. Sometimes issuing shares is used as a means of raising capital in the same way a bond could just be used, but dividends paid on the shares are variable based on profits. The shares might not have any rights to the increase in NAV beyond what is distributed in dividends. This isn't much different to a bond with a variable interest rate, which is why I don't consider it true equity.

As to how much profit you would distribute at any given interval, that would normally be determined by what excess cash is generated and not needed for further investment in growth. Most shareholders are happy with low monthly returns if there is equity growth in the shares as well. Without the equity growth, the decision to invest is just the same as any other risk/reward based decision on a lend.

A fixed dividend payable on shares could also work, it's just a way of arriving at the regular distribution figure, but again it comes back to the equity participation point, as without that, a fixed dividend is just an interest rate if there is no growth in value.
Fin Udan
Doomheim
#3 - 2016-03-08 16:49:30 UTC
Any Genuine issue of shares is a licence to print money which is why most share issues are scams.

Borrowing isk(As opposed to 'loans') is relatively easy and is a 'no brainer' as a means of finance.

Loans : You make a one time interest payment and you're done

Corp shares : You pay interest forever and a day(until you scam) which is ofc why so many 'corp' offers are scams

I trade Eve Mogul
Bumblefck
Kerensky Initiatives
#4 - 2016-03-08 17:04:10 UTC
Magnu Stormhawk wrote:
There have been various iterations of the same thing in the past, but your summary of a percentage split of the profits issued as a dividend is pretty much the norm if it is a proper equity share setup.

For a proper equity issue, the issued shares would have a right to x% of the profit distributions and x% of the NAV.

When you make a profit, it is either distributed to all the shareholders including yourself, or it is held back and reinvested into the business. Usually its a hybrid of the two. In your example you are issuing 50% of the profit as a dividend. So 50% of the increase in value is held back. The shares then should go up in value because they now have a right to x% of the increased NAV. On liquidation or buyback, the share value is determined by the NAV at that point.

Anything other than this is not really true equity, but it can work. Sometimes issuing shares is used as a means of raising capital in the same way a bond could just be used, but dividends paid on the shares are variable based on profits. The shares might not have any rights to the increase in NAV beyond what is distributed in dividends. This isn't much different to a bond with a variable interest rate, which is why I don't consider it true equity.

As to how much profit you would distribute at any given interval, that would normally be determined by what excess cash is generated and not needed for further investment in growth. Most shareholders are happy with low monthly returns if there is equity growth in the shares as well. Without the equity growth, the decision to invest is just the same as any other risk/reward based decision on a lend.

A fixed dividend payable on shares could also work, it's just a way of arriving at the regular distribution figure, but again it comes back to the equity participation point, as without that, a fixed dividend is just an interest rate if there is no growth in value.



Great explanation, thanks!



Quote:
Any Genuine issue of shares is a licence to print money which is why most share issues are scams.

Borrowing isk(As opposed to 'loans') is relatively easy and is a 'no brainer' as a means of finance.

Loans : You make a one time interest payment and you're done

Corp shares : You pay interest forever and a day(until you scam) which is ofc why so many 'corp' offers are scams



Yes, the share issue thing is as easy as getting a loan here and then buggering off. However, don't forget that people with moustaches are honest :)

Perfection is a dish best served like wasabi .

Bumble's Space Log
Fin Udan
Doomheim
#5 - 2016-03-08 17:38:50 UTC
Bumblefck wrote:
Magnu Stormhawk wrote:
There have been various iterations of the same thing in the past, but your summary of a percentage split of the profits issued as a dividend is pretty much the norm if it is a proper equity share setup.

For a proper equity issue, the issued shares would have a right to x% of the profit distributions and x% of the NAV.

When you make a profit, it is either distributed to all the shareholders including yourself, or it is held back and reinvested into the business. Usually its a hybrid of the two. In your example you are issuing 50% of the profit as a dividend. So 50% of the increase in value is held back. The shares then should go up in value because they now have a right to x% of the increased NAV. On liquidation or buyback, the share value is determined by the NAV at that point.

Anything other than this is not really true equity, but it can work. Sometimes issuing shares is used as a means of raising capital in the same way a bond could just be used, but dividends paid on the shares are variable based on profits. The shares might not have any rights to the increase in NAV beyond what is distributed in dividends. This isn't much different to a bond with a variable interest rate, which is why I don't consider it true equity.

As to how much profit you would distribute at any given interval, that would normally be determined by what excess cash is generated and not needed for further investment in growth. Most shareholders are happy with low monthly returns if there is equity growth in the shares as well. Without the equity growth, the decision to invest is just the same as any other risk/reward based decision on a lend.

A fixed dividend payable on shares could also work, it's just a way of arriving at the regular distribution figure, but again it comes back to the equity participation point, as without that, a fixed dividend is just an interest rate if there is no growth in value.



Great explanation, thanks!



Quote:
Any Genuine issue of shares is a licence to print money which is why most share issues are scams.

Borrowing isk(As opposed to 'loans') is relatively easy and is a 'no brainer' as a means of finance.

Loans : You make a one time interest payment and you're done

Corp shares : You pay interest forever and a day(until you scam) which is ofc why so many 'corp' offers are scams



Yes, the share issue thing is as easy as getting a loan here and then buggering off. However, don't forget that people with moustaches are honest :)


You have quite missed the point of my previous post possibly because it wasn't explained very well.

If you wish to raise capital on this forum there are several ways to go.

The cheapest way is with a collaterised loan.

The next cheapest way is with an uncollaterallised loan

The most expensive way to raise capital is to offer shares for the simple reason you are committing to pay interest for ever and a day.

This is the reason that most corp share offers are scams

I trade Eve Mogul
Bumblefck
Kerensky Initiatives
#6 - 2016-03-08 18:24:39 UTC  |  Edited by: Bumblefck
No, I understand perfectly what you're saying - but what I'm saying, in return, is that I wasn't asking at all about how to raise money. I know how to do that, having run bonds and loans in the past. Rather, this thread is just about the dividend mechanic.

Perfection is a dish best served like wasabi .

Bumble's Space Log
Bumblefck
Kerensky Initiatives
#7 - 2016-03-08 18:30:54 UTC
Fin Udan wrote:
The most expensive way to raise capital is to offer shares for the simple reason you are committing to pay interest for ever and a day.




That's only true until you or your corp decides to buy back all of the shares issued - at that point, the issue is completed and no more payments need be made.

Perfection is a dish best served like wasabi .

Bumble's Space Log
Aaron Honk
Distributed Denial of Service
#8 - 2016-03-08 18:32:13 UTC  |  Edited by: Aaron Honk
.
Bumblefck
Kerensky Initiatives
#9 - 2016-03-08 19:32:53 UTC
Aaron Honk wrote:
I will take 20 bil Blink




Quote:
and I accept Jerry's 20bn pledge in advance




I put Jerry's name there, but I accept any and all pledges Bear

Perfection is a dish best served like wasabi .

Bumble's Space Log
Areen Sassel
Dirac Angestun Gesept
#10 - 2016-03-08 21:35:25 UTC  |  Edited by: Areen Sassel
Bumblefck wrote:
a) A fixed amount, per share owned by investors. I guess this might increase over time, as the corporate NAV rises and so too do the value of the shares
or
b) A percentage of the profits, and then redistributed back to investors. This would probably fluctuate depending on trading conditions, but would I always - for example - put 50% (say, or whatever is agreed on the IPO write-up) of the profits in the Master Wallet division and then disburse the dividends to all concerned.


Excuse me if this is all Captain Obvious material.

IRL, of course, a company's share price is determined primarily by third party share trading; it's easy for third parties to trade shares, the share price reflects to a degree what people expect the share price to do (until someone is left holding the bag), and the company's NAV is hard to calculate.

In EVE third party share trading is hard and nearly everything the company owns can be readily liquidated for ISK.

So if the share price is NAV/shares, item a) applies when the NAV rises. It's not a payout, but an increase in the amount you promise to pay people who sell shares back to you. If you aren't running a scam, increases there would be justified by corresponding rises in assets the company uses to turn a profit. It wouldn't just accumulate stuff (or money) to no purpose. If you did not have so fine a moustache, you would naturally seek to increase this as much as possible in order to generate no surplus cash under b).

Item b) would then consist of all the surplus cash, including sales of other assets. (I wouldn't say 50%, in your example; I'd say Bumble owns 50% of the shares and so the total profit goes 50% to him).
CAPTA1N OBVIOUS
Imperial Academy
Amarr Empire
#11 - 2016-03-08 21:54:42 UTC
Areen Sassel wrote:

Excuse me if this is all Captain Obvious material.





You called, obviously.

I am on this page - It should be obvious who I am
Bumblefck
Kerensky Initiatives
#12 - 2016-03-08 22:05:38 UTC
Areen Sassel wrote:
Bumblefck wrote:
a) A fixed amount, per share owned by investors. I guess this might increase over time, as the corporate NAV rises and so too do the value of the shares
or
b) A percentage of the profits, and then redistributed back to investors. This would probably fluctuate depending on trading conditions, but would I always - for example - put 50% (say, or whatever is agreed on the IPO write-up) of the profits in the Master Wallet division and then disburse the dividends to all concerned.


Excuse me if this is all Captain Obvious material.

IRL, of course, a company's share price is determined primarily by third party share trading; it's easy for third parties to trade shares, the share price reflects to a degree what people expect the share price to do (until someone is left holding the bag), and the company's NAV is hard to calculate.

In EVE third party share trading is hard and nearly everything the company owns can be readily liquidated for ISK.

So if the share price is NAV/shares, item a) applies when the NAV rises. It's not a payout, but an increase in the amount you promise to pay people who sell shares back to you. If you aren't running a scam, increases there would be justified by corresponding rises in assets the company uses to turn a profit. It wouldn't just accumulate stuff (or money) to no purpose. If you did not have so fine a moustache, you would naturally seek to increase this as much as possible in order to generate no surplus cash under b).

Item b) would then consist of all the surplus cash, including sales of other assets. (I wouldn't say 50%, in your example; I'd say Bumble owns 50% of the shares and so the total profit goes 50% to him).



Nothing is too obvious for Bumble! Thank you for the clear explanation!


(as you can see - and as you have stated - my mousatchio is woven of the finest threads of Honesty!)

Perfection is a dish best served like wasabi .

Bumble's Space Log
Jay Aaron
M-Spec Industrial Resources Ltd
Agents of Fortune
#13 - 2016-03-09 01:03:05 UTC  |  Edited by: Jay Aaron
Good stuff here, gotta love the corporate entity.

RL, in theory, share value is the present value per share of the expected stream of dividends, distributions and, ultimately, sale or liquidation of the corp over its foreseeable life, discounted at a rate reflective of the perceived risks associated with these expected returns plus a reasonable "risk free" rate of return.

The dividend is set by management, with board and, ultimately, shareholder approval. Dividends are typically zero to a small portion of earnings per share in early stages of a company's growth, where investors are better served to have earnings reinvested in growth than distributed. As a company reaches maturity, dividends often increase as opportunities for growth begin to diminish and cash reserves begin to accumulate. If you dig this stuff, check out your uni's MBA program...

Same thing in EVE, really, EXCEPT that in EVE, there is no legal system to regulate the formation and operation of corporations, the reporting of their operating results, or impose and enforce sanctions against negligence or malicious doings in the operation of a corporation, and there's no stock market infrastructure to provide traders with a vehicle to bid shares up or down based on their assessment of share value. Add to all that that pretty much everything in EVE is a commodity - no patents, trademarks or other technological advantage, no product/service differentiation, no significant barriers to entry, essentially no strategic differentiation at all other than the cleverness of the management team - and share value often ends up falling back to a default value like NAV per share.

The dividend in an EVE corp is set by the CEO , (or scammer, as the case may be) and, if legitimate, will follow similar logic. Investors are hoping they've picked somebody they can trust and that whatever he's doing with the corp will increase the value of the shares.

EVE corps often fail to raise capital because the perceived risk of scam is so high that the present value of the shares discount to ZERO.
Elizabeth Norn
Nornir Research
Nornir Empire
#14 - 2016-03-09 01:28:40 UTC