Task: Interpretation of Financial Ratios
Shannon Michaels is interested in the stock of Acelicom, a company that sells building materials to the construction industry. Before purchasing the stock, Shannon would like your help in analyzing the following data:
|
|
Year 3
|
Year 2
|
Year 1
|
|
Sales trend.............................................................
|
135
|
122
|
110
|
|
Current ratio.........................................................
|
2.5
|
2.4
|
2.2
|
|
Acid-test (quick) ratio.........................................
|
0.8
|
1.0
|
1.2
|
|
Accounts receivable turnover............................
|
10.2
|
10.9
|
13.1
|
|
Average sale period.............................................
|
6.8
|
8.2
|
8.8
|
|
Dividend yield......................................................
|
7.8%
|
6.9%
|
6.1%
|
|
Dividend payout ratio.........................................
|
40%
|
50%
|
60%
|
|
Return on total assets.........................................
|
13.1%
|
12.4%
|
11.0%
|
|
Return on common stockholders' equity........
|
14.5%
|
11.2%
|
9.6%
|
|
Dividends paid per share *.................................
|
$1.55
|
$1.55
|
$1.55
|
*There have been no changes in common stock outstanding over the three-year period.
Shannon would like answers to a number of questions about the trend of events in Acelicom over the last three years. His questions are:
Required:
Q1. Is it becoming easier for the company to pay its bills as they come due? Explain your answer.