Problem
Over the years, Donna Dow has been a very successful investor. She investigates a company thoroughly before purchasing its shares. Donna is interested in the common stock of IBU Computers Limited. The following data are available for the company:
|
2013
|
2012
|
2011
|
|
Current ratio*
|
1.9
|
2.0
|
2.1
|
|
Acid-test ratio
|
1.1
|
1.0
|
.9
|
|
Accounts receivable turnover
|
3.6X
|
3.5X
|
3.0X
|
|
Inventory turnover
|
4X
|
5X
|
6X
|
|
Current liabilities
|
$1M
|
$1M
|
$1M
|
|
Sales
|
$10M
|
$10M
|
$10M
|
|
Gross Profit Ratio
|
30%
|
30%
|
30%
|
|
Dividends paid per share**
|
$4
|
$3
|
$2.50
|
|
Dividend yield ratio
|
5.5%
|
5.5%
|
5.5%
|
|
Dividend payout ratio
|
40%
|
40%
|
40%
|
|
Return on total assets
|
10%
|
12%
|
8%
|
|
Return on common stockholders equity
|
8%
|
14.5%
|
9%
|
* Current assets consist of cash, accounts receivable, and inventory.
**There were no changes in common stock outstanding over the three-year period.
Donna would like answers to a number of specific questions regarding this data. Respond in a complete but concise manner to each of her questions.
- Is the market price of the company's stock going up or down?,
- Is the earnings per share increasing or decreasing?
- Is the company employing financial leverage to the advantage of the common stockholders?
- Is it becoming easier for the company to pay its bills as they come due?
- Are customers paying their bills at least as fast now as they did in Year 1?
- Is the total of accounts receiving increasing, decreasing, or remaining constant?
- Is the level of inventory increasing, decreasing, or remaining constant?