Over the years, Kalli Lizama has been a very successful investor. She investigates a company thoroughly before purchasing its shares. Kalli is interested in the common stock of McBride Enterprises. The following data are available for the company:
2012 2011 2010
Current ratio 2.9 2.4 2.1
Acid-test ratio 0.8 1.0 1.3
Accounts receivable turnover 7.6 8.5 9.4
Inventory turnover 5.0 5.7 6.8
Sales trend 130.0 118.0 100.0
Dividends paid per share* $2.75 $2.75 $2.75
Dividend yield ratio 5.5% 4.2% 3.3%
Dividend payout ratio 40% 50% 60%
Return on total assets 13.0% 11.8% 10.4%
Return on common stockholders’ equity 16.2% 14.5% 9.0%
*There were no changes in common stock outstanding over the three-year period.
Kalli would like answers to a number of specific questions this data. Respond in a complete but concise manner to each of her questions.
1. Is the market price of the company’s stock going up or down?
2. Is the earnings per share increasing or decreasing?
3. Is the price-earnings ratio going up or down?
4. Is the company employing financial leverage to the advantage of the common stockholders?
5. Is it becoming easier for the company to pay its bills as they come due?
6. Are customers paying their bills at least as fast now as they did in Year 1?
7. Is the total of accounts receivable increasing, decreasing, or remaining constant?
8. Is the level of inventory increasing, decreasing, or remaining constant?
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