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6 Jul 2018
PROBLEM 15-17 Interpretation of Financial Ratios (L015-2, LO15-3, L015-5, L015-6] Pecunious Products, Inc.'s financial results for the past three years are summarized below: Year 3 Year 1 128.0 2.5 0.8 9.4 6.5 Sales trend . . . . . . . . . . Current ratio ...... Acid-test ratio ................ Accounts receivable turnover. Inventory turnover .... Dividend yield ................. Dividend payout ratio ............ Return on total assets ........... Return on equity .... Dividends paid per share* ........ Year 2 115.0 2.3 0.9 10.6 7.2 6.5% 50% 11.0% 10.0% $1.50 7.1% 40% 12.5% 14.0% $1.50 100.0 2.2 1.1 12.5 8.0 5.8% 60% 9.5% 7.8% $1.50 "There have been no changes in common stock outstanding over the three-year period. a. b. c. d. Your boss has asked you to review these results and then answer the following questions: Is it becoming easier for the company to pay its bills as they come due? Are customers paying their accounts at least as fast now as they were in Year 1? Is the total of the accounts receivable increasing, decreasing, or remaining constant? Is the level of inventory increasing, decreasing, or remaining constant? e. Is the market price of the company's stock going up or down? f. Is the earnings per share increasing or decreasing? g. Is the price-earning ratio going up or down? h. Is the company employing financial leverage to the advantage of the common stockholders? Required: Provide answers to each of the questions raised by your boss.
PROBLEM 15-17 Interpretation of Financial Ratios (L015-2, LO15-3, L015-5, L015-6] Pecunious Products, Inc.'s financial results for the past three years are summarized below: Year 3 Year 1 128.0 2.5 0.8 9.4 6.5 Sales trend . . . . . . . . . . Current ratio ...... Acid-test ratio ................ Accounts receivable turnover. Inventory turnover .... Dividend yield ................. Dividend payout ratio ............ Return on total assets ........... Return on equity .... Dividends paid per share* ........ Year 2 115.0 2.3 0.9 10.6 7.2 6.5% 50% 11.0% 10.0% $1.50 7.1% 40% 12.5% 14.0% $1.50 100.0 2.2 1.1 12.5 8.0 5.8% 60% 9.5% 7.8% $1.50 "There have been no changes in common stock outstanding over the three-year period. a. b. c. d. Your boss has asked you to review these results and then answer the following questions: Is it becoming easier for the company to pay its bills as they come due? Are customers paying their accounts at least as fast now as they were in Year 1? Is the total of the accounts receivable increasing, decreasing, or remaining constant? Is the level of inventory increasing, decreasing, or remaining constant? e. Is the market price of the company's stock going up or down? f. Is the earnings per share increasing or decreasing? g. Is the price-earning ratio going up or down? h. Is the company employing financial leverage to the advantage of the common stockholders? Required: Provide answers to each of the questions raised by your boss.
Elin HesselLv2
8 Jul 2018
