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The financial statements and balance sheet of Dawson Stores, Inc provide valuable information about the company's past financial performance. However, they rarely provide enough information to conclude weather the company is a good credit risk or not. Nevertheles, it rather provides clues about aspects of the firms operations which we need to examine more closely. Financial ratios are used to extend our understanding of the financial statement of Dawson Stores.Inc.
PROFITABILITY MEASURES
The ROE ratio declines between 180 and 181. At a first glance this may seem as an unhealthy tendency, however, The ROE ratio has a substantial growth between 181 and
18.ROI with financial leverage is increasing between 181 and 18 too which means that the business had started being more effective on putting its assets to work. The ratio would be more useful if the business performance is compared to industry's norms.
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Gross Profit Margin Ratio is decreasing between 180 and 181, increasing 181 and 18. which indicates that Dawson Stores Inc. management has improved the usage of its materials and labor more efficiently .In 181 The low Margin also which might indicate that the business was underpricing its goods however that might have happened because of the high competion in the industry. Starting 18 the business started doing a better job in pricing its goods. In addition to that Turnover increased in 18.??? Gross profit is increasing too.Revenues in $ amounts is increasing
LIQUIDITY MEASURES
Working Capital in $ amount is increasing. Current Ratio is decreasing(.1-1.67)
Although the Acid-Test Ratio which measures the liquidity of Dawson Stores dropped between 181 and 18 and at a first glance it may seem like the businesses capability of paying its depths is decreasing however even in 18 where the Acid-Test Ratio is the lowest the value is still the optimal which is "1". This might have done on purpose by the management not to tie up a lot of assets in inventory. A closer to look to the industry might be useful for further analysis.
ACTIVITY MEASURES
Total Asset Turnover is increasing between 181 and 18.
Accounts receivable ratio has dropped between 180 and 18 which means that the management was not doing a good enough job on collections or the payment terms compared to the industry average was low. However in 18 Management did a better job.
FINANCIAL LEVERAGE MEASURES
The Debt Ratio and Debt/Equity Ratio are both inclining over four years, and at a first glance it looks as a concern. However both ratios even at their highest levels at the end of year 18 are still less than the average industry ratios. Debt Ratio at the end of year 18 is 4% which is less than the average industry ratio (50%). Debt/Equity Ratio at the end of year 18 is 0.8 which is less than the average industry ratio (1.0). The management might have decided to take more risk due to competitiveness in the industry.
As a matter of fact, an impact of a possible economic recession should be analyzed in more detail.
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