FIN 7100 Module 1 Statements and TVM Written Assignment Example

A 7.9 Percent Dividend Yield and a 119 Percent Payout: Reading Campbell's Fiscal 2026 Statements and Valuing a Client's Shares

Student Name

Master of Business Administration (MBA), Thomas Edison State University

FIN-7100: Financial Management

Mentor Name

Month Day, Year

A 7.9 Percent Dividend Yield and a 119 Percent Payout: Reading Campbell's Fiscal 2026 Statements and Valuing a Client's Shares

A client of the small Princeton advisory practice where I work, a retired teacher, inherited 2,400 shares of The Campbell's Company, the Camden, New Jersey, food maker. At the September 30, 2026, closing price of $19.83 the position is worth about $47,600, and its quarterly dividend of $0.39 produces income she values. She has asked whether she should keep it. This assignment answers in two parts. The first reads Campbell's four financial statements for fiscal 2026, the year ended August 2, 2026, from the company's Form 10-K (The Campbell's Company, 2026). The second uses time value of money to compare the share price with the value of the cash it is likely to pay her, at the return she should reasonably require.

The Financial Manager's Goal

Berk and DeMarzo (2020) frame corporate financial decisions around maximizing the market value of the firm for its shareholders, and they show that a decision adds value when the present value of its benefits exceeds the present value of its costs. Jensen (2001) argues that value maximization remains the right single objective because a firm with many objectives has, in practice, none, while accepting that long-run value cannot be built by neglecting customers, employees or communities. Campbell's share price is the market's running verdict on how well its managers are meeting that goal, and the statements below help explain why the verdict over the past five years has been harsh.

Reading the Four Statements

The income statement shows a shrinking and less profitable business. Net sales fell 5.0 percent, from $10,253 million to $9,744 million, although part of the decline reflects a fiscal 2025 that ran fifty-three weeks against fifty-two in fiscal 2026. Operating income fell from $1,124 million to $852 million, cutting the operating margin from 11.0 to 8.7 percent, and net earnings dropped to $403 million, or $1.31 a diluted share, from $2.01. The year included $117 million of impairment charges on indefinite-lived intangible assets (trademarks) and $67 million of restructuring charges.

The balance sheet carries the weight of past acquisitions. Total debt was $7,137 million, $977 million of it due within a year, against shareholders' equity of $3,850 million, a ratio of 1.85. Current liabilities of $3,336 million exceeded current assets of $2,720 million, a current ratio of 0.82, which is common for food companies that collect from retailers quickly but leaves little slack. Operating income covered interest expense of $331 million only 2.6 times, down from 3.3.

The cash flow statement is the strongest of the four. Operating activities produced $1,039 million; after $361 million of capital spending, free cash flow was $678 million. The statement of shareholders' equity shows where much of it went: $470 million in common dividends. Dividends declared rose to $1.56 a share while earnings fell to $1.31, a payout of about 119 percent of earnings, though free cash flow still covered the dividend about 1.4 times. Brav et al. (2005) found that managers treat the dividend as nearly untouchable and would rather pass up some investment than cut it, which helps explain why Campbell's raised it in a weak year.

Time Value of Money: Is $19.83 a Fair Price for Her?

The annual dividend of $1.56 is a 7.9 percent yield at today's price. Treating the dividend as a perpetuity that never grows, the value of the share equals the dividend divided by the return the client requires (Berk & DeMarzo, 2020). At 8 percent the share is worth $19.50, at 9 percent $17.33 and at 10 percent $15.60. The market price therefore implies that investors expect a return near 7.9 percent if the dividend holds flat forever, or about 5.7 percent if it shrinks 2 percent a year.

A second test uses a ten-year horizon, which suits her plans. Ten annual dividends of $1.56 discounted at 9 percent are worth $10.01 today, and a resale price of $18 in ten years is worth $7.60, for a total of $17.61, about 11 percent below the market price. Under these assumptions she would be paying more for the cash stream than it is worth to her at a 9 percent required return.

History shows the cost of waiting. A $10,000 investment in Campbell's at the end of September 2021, with dividends reinvested, was worth about $5,780 five years later, an annualized return of minus 10.4 percent. The same sum in the S&P 500 index, counting only price changes, would have grown to about $17,760. That gap is the opportunity cost of holding a single declining stock.

Recommendation

Campbell's still generates real cash, and its dividend is covered by free cash flow, so a sudden cut is not the base case. But earnings no longer cover the dividend, debt is high relative to equity and income, and the stock is worth less than its price at the return the client should require for a single company. I recommend she sell about two-thirds of the position over the next two quarters, which in a taxable account costs her little because inherited shares receive a stepped-up basis, and reinvest in a diversified income fund, keeping the remaining 800 shares for their current income. Selling in steps rather than all at once reduces the risk of selling at a short-term low after the September decline, and the remaining shares still give her about $1,250 a year in dividends. If Campbell's later reduces its debt and earnings again cover the dividend, she can rebuild the position from strength rather than hope, and the proceeds of the sale meanwhile earn income from a far wider set of companies.

References

Berk, J., & DeMarzo, P. (2020). Corporate finance: The core (5th ed.). Pearson.

Brav, A., Graham, J. R., Harvey, C. R., & Michaely, R. (2005). Payout policy in the 21st century. Journal of Financial Economics, 77(3), 483-527. https://doi.org/10.1016/j.jfineco.2004.07.004

Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8-21. https://doi.org/10.1111/j.1745-6622.2001.tb00434.x

The Campbell's Company. (2026). Form 10-K: Annual report for the fiscal year ended August 2, 2026. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/16732/000001673226000026/cpb-20260802.htm