The numbers of days' sales in accounts receivable is measures evaluating the number of days inventory purchased on credit remains in accounts receivable. In 2000 number of days' sales in accounts receivable is 96.2 days and in 2001 is 94 days. This ratio seems scientifically high and may have adverse impact on Sample Company's cash flow and may force unnecessary debt to cover liabilities. Typically, accounts receivable are due within 30 days, depending on credit agreements. This ratio may cause question of Sample Co. cash flow efficiency.
Inventory turnover shows efficiency of a company's the firm's inventory management. Inventory turnover (cost of good sold/average inventories) in 2001 is 5.3 and in 2000 5.1 for an increase of 0.2 times. Sample Co. shows slight growth in this activity measure, considering the substantial amounts of average inventory ($1,267 million) this could be a significant increase.
Leverage is area of evaluations of Sample Company's condition. In 2000 the debt/equity ration is at 36.1% and in 2001 is 47.5%, or an 11.4% increase. On the Consolidated Financial Position statement a long-term debt increase of $666 million and on the Consolidated Statement of Cash Flows a significant increase in short-term debt of $449 million are noted. Sample Co. did invest $300 million in expenditures for land, buildings, machinery, and equipment in 2001, but that does not account for the significant increase in debt. The Consolidated Statement of Cash Flows does not express if these investment are part of strategic goals to improve sales, productive or how these investment will relate to the bottom line of Sample Co.
In evaluating Sample Co. Stock, Price to earning (P/E) ratio is ratio used to evaluate the cost of a company's stock price. Sample Co. P/E ratio is 13.1 for 2001 and 10.7 for 2000. Another stock evaluation ratio is dividend payout (dividends per share/earnings per share).
