Arlene Joy Garcia

ACC 216 9:45-11:45 am

A. Liquidity
-The current ratio of the company is increasing each year and it is a good
indication. This means that the company doesn’t have difficulties in meeting its
current obligations. Compared to year 1 and 2, the company improve its liquidity.
However, the acid-test ratio of the company drops to 0.8 which means that the
company cannot meet its short term obligations without selling their inventories.
In this case, the company must improve their acid-test ratio by increasing
inventory turnover.
B. Asset Management
-The accounts receivable turnover of the company decreases to 9.4 times.
This indicates that the company is not effectively collecting receivables from
customers from sale transactions. The possible reasons why this happened are
the customers have difficulties in settling their payment and the collections
policies of the company is not effective. Moreover, the inventory turnover of the
company also decreases by 6.5 which has a big difference compared to year 2.
The company has less inventory that has been sold in the current year. This
situation will incur additional cost in the company and it’s a bad indication. The
company must provide effective strategies on how they are going to sell their
inventories to improve its turnover. Another possible reason why it decrease is
that there might have a defects inventories.
C. Profitability
As to the data given, the profitability ratios of the company are increasing
which means that the company is performing well by generating profits and value
to shareholders. This is favorable to the investors of the company because their
money is guaranteed to grow and it can also attract more investors since the
company is capable of generating cash internally.
D. Market Performance
-The dividend yield ratio of the company increases which indicates that the
investors of Pecunious Products Inc. will obtain 7.1% of its investment back in
the form of cash dividend. The higher the percentage of dividend yield ratio, the
more beneficial it is not just in the investors but as well as to the company.
However, the dividend payout ratio decreases to 40%. The company reduce their
dividends to have cash in order to pay its short-term obligations since the acid-
test ratio of the company decreases to 0.8 and they are dependent on the sale of
inventories.