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    Ratio analysis

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    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:

    a. Is it becoming easier for the company to pay its bills as they come due?

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    Solution Preview

    a. Is it becoming easier for the company to pay its bills as they come due?

    This is an issue of liquidity as it relates to the short term funds management of the organization.

    Current ratio measures the liquidity position of the organization. It indicates the ability to pay the short term obligations of the organization. It is computed by Current Assets/Current Liabilities.

    The other prominent liquidity ratio is quick ratio which measures the near term ...

    Solution Summary

    This gives the steps for Ratio analysis