Attached you will find my analysis of Durable Home Goods (DHG) for fiscal year 11 and my insights on some of your strengths, weaknesses, and opportunities to drive topline sales in 2012. Current Ratio
The current ratio is an indication of a company’s ability to pay current liabilities with current assets. The formula for calculating the current ratio is current assets divided by current liabilities. DHG has a current ratio of 1.69 for year 11. When compared to the current ratio of 1.83 in year 10 and industry data quartiles of 3.1, 2.1, and 1.4 this ratio appears to be decreasing and indicates a weakness. Management should investigate ways to increase assets and reduce liabilities to improve the company’s ratio and ability to pay its liabilities. Acid-Test Ratio
The acid-test ratio is an indication of a company’s ability to pay all of its current liabilities if they came due immediately. The formula for calculating this starts by adding cash, short term investments, and net current receivables together and driving them by current liabilities. DHG has an acid-test ratio of .39 for year 11. This compared to the acid test ratio of .61 for year 10 and the industry quartiles of 1.6, .9, and .6. This ratio is decreasing and indicates a weakness for DHG. Management again needs to investigate ways to increase assets and reduce liabilities to improve this ratio and the company’s ability to pay its liabilities. Inventory Turnover
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... current by liabilities or quick ratio which divides current assets minus inventions by current liabilities. The higher the ratio the higher the liquidity and hence the ability to pay ... other being longterm liabilities. Current liabilities refers to those liabilities that are payable within a duration of one year or less. Longterm liabilities can be paid ...
The inventory turnover ratio is an indication of a company’s ability to sell its inventory/goods. The formula for calculating this is the cost of goods divided by average inventory. DHG has an inventory turnover ratio of 5.15 for year 11. This compared to the inventory turnover of 6.10 for year 10 and the industry quartiles of 13, 10.2, and 8.3 is decreasing and indicates a weakness. Management needs to take action to reduce inventory levels, eliminate non profitable product lines to increase net income and profitability.
Accounts Receivable Turnover
The accounts receivable ratio is an indication of a company’s ability to collect from its customers. The formula for calculating this is net credit sales divided by average net accounts receivables. DHG has an accounts receivable turnover of 32.1 for year 11. This compared to the accounts receivable turnover of 32.2 for year 10 and the industry quartiles of 35.2, 33.5, and 31.4 is indicates there is no concern. No recommendations to management needed. Day’s Sales in receivables
The day’s sales in receivables ratio is an indication of a company’s ability collect its outstanding receivables in a timely manner. The formula for calculating this is average net accounts receivables divided by one day’s sales. DHG has a day’s sales in receivables ratio of 6.8 for year 11. This compared to the day’s sales in receivables of 11.1 for year 10 and the industry quartiles of 15.1, 13.5, and 11.3 indicates a strength for DHG. Management has been able to significantly reduce the amount of time it takes to collect on its receivables and is substantially exceeding the top industry quartile performance. Debt Ratio
The debt ratio is an indication of a company’s ability to pay long term debt. The formula for calculating this is total liabilities divided by total assets. DHG has a debt ratio of 30.74% for year 11. This compared to the debt ratio of 28.54% for year 10 and the industry quartiles of 30%, 45%, and 66% indicates strength. Management should investigate reducing any expenditure that would be financed by long term debt that does not add significant revenue or increase the company’s assets. Times-interest-earned
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... between financial ratios and stock return of next year. Also, the results showed that the ratio of book ... equity, price to earnings ratio, the ratio of cash flow to price and sale growth in both ... stock. EPS is calculated as follows: EPS = Net earnings / Outstanding shares e. Asset size Asset ... of public information, discount rates are widely discussed in past studies. Return is something that investor ...
The times-interest-earned ratio is an indication of a company’s ability to pay interest expense. The formula for calculating this is income from operations divided by interest expense. DHG has times-interest-earned ratio of 160.29 for year 11. This compared to the times-interest-earned ratio of 172.59 for year 10 and the industry quartiles of 29.7, 17.2, and 8.1 indicate a strength for DHG. No recommendation to management needed. Rate of return on net sales
The rate of return on net sales ratio is an indication of a company’s ability to sell its goods profitably. The formula for calculating this is net income divided by net sales. DHG has a rate of return on net sales ratio of 6.33% for year 11. This compared to the rate of return on net sales of 5.68% in year 10 and the industry quartiles of 7.55%, 6.12%, and 4.20% indicates strength. Management needs to continue reducing operating expenses to improve profitability. Rate of return on total assets
The rate of return on total assets ratio is an indication of a company’s ability to effectively uses its assets to generate earnings. The formula for calculating this is net income added to interest expense divided by average total assets. DHG has a current rate of return on total assets of 13.71% for year 11. This compared to the rate of return on total assets of 12.30% in year 10 and the industry quartiles of 17.2%, 12.30%, and 8.60% indicates a strength for DHG. Management needs to continue leveraging the company’s assets to generate additional earnings.
Rate of return on common shareholders’ equity
The rate of return on common shareholders’ equity ratio is an indication of a company’s ability to generate income for each dollar invested by its shareholders. The formula for calculating this is net income minus preferred dividends divided by average common stockholders’ equity. DHG has a current rate of return on common shareholders’ equity of 19.32% for year 11. This compared to the rate of return on common shareholders’ equity of 20.20% in year 10 and the industry quartiles of 18.60, 16.30, and 12.80 indicates a strength. No recommendation to management needed.
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The American Cancer Society estimates that 177, 000 new cases of lung cancer are diagnosed annually in the United States of America. The estimation in sex is 112, 200 men and in women the estimation is 81, 700, with a 5-year mortality rate of approximately 85%, more than 164, 000 of these individuals will eventually die from the disease. More than 540, 000 will die this year of cancer (nearly 1, ...
Earnings per share of common stock (EPS)
The earnings per share of common stock is the amount of net income earned for each share of the company’s common stock outstanding. The formula for calculating this is net income minus preferred dividends divided by the number of shares of common stock outstanding. DHG has a current EPS of $1.064 for year 11. This compared to the EPS of 0.702 for year 10 and the industry quartiles of 0.9, 0.87, and 0.83 indicates a strength. No recommendation to management needed, DHG has outperformed the top industry quartile of 0.9. Price earnings ratio
The price earnings ratio is a ratio of the current share price compared to its per-share earnings. The formula for calculating this is market price per share of common stock divided by earning per share. DHG has a price earnings ratio of 4.93 for year 11. This compared to the price earnings ratio of 4.98 for year 10 and the industry quartiles of 7, 6.3, and 5.5 indicates a weakness compared to the industry quartile of 7. Book value per share of common stock
The book value per share of common stock is indications of a company’s ability to pay its shareholders after all assets are liquidated and all debtors are paid. The formula for calculating this is total stockholders minus preferred equity divided by number of common stock outstanding. DHG has a current book value per share of common stock of 5.76 for year 11. This compared to the book value per share of common stock of 4.21 for year 10 and the industry quartiles of 6, 5.5, and 4.9 indicate a strength. No recommendation to management needed.
