Question 1

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Linear Technologyâs payout policy can be observed from Exhibit 3. From Q1 93 onwards, Linear has been steadily paying out dividends every quarter. Over the years, the dividends paid out to shareholders have also increased. From the dividend payout ratio (Appendix, Table 1), it is evident that especially in 2002 to 2003, dividends being distributed have increased from its previously steady ratio of approximately 0.100. Dividends in both years have increased despite the fall in net income.

There were stock splits for Linear in 1993, 1996, 1999 and 2000. This meant that the residual shares owned increased, and that shareholders can then receive more dividends. However since dividend payout ratio remained fairly stable, this reflects greatly on Linearâs strong earnings.

Question 2

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Linear Technology has no financing needs, given its large cash balance of US$1.565 billion in 2003 and positive net cash flow from 1992. Net income has also been positive since 1992, with net income in the first 3 quarters of 2003 at US$170.6 million.

Current liabilities stand at US$135.6 million[1], and long-term liabilities at $97.5 million. Accounts receivable as at March 2003 was at $83.6 million, current assets at $1.741 billion, leading to total assets of $2.031 billion.

Hence, this leads to quick and current ratios of 12.2 and 12.8 respectively (Appendix), and a debt ratio of 7.5. This figure indicates that assets far exceed liabilities in the short and long term, proving that the company has sufficient liquidity and long-term solvency.

Additionally, as Linear CFO Paul Coghlan has indicated that he had âno plans for acquisitionsâ (Pg 3), all factors point to the absence of any requirement for external financing.

Linear Technology should return at least a significant portion of its cash to shareholders as