Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy.Debt RatioEarning per share of common stocksPrice/earning rationDividend payout B c D EFG1 Using ratios to decide between two stock investments2Assume that you are purchasing an investment and have decided to invest in acompany in the digital phone business. You have narrowed the choice to3 Digitalized, Corp., and Zone Network, Inc., and have assembled the following45 Selected income statement data for the current year:67DigitalizedZone Network9 Net sales (all on credit) . .$423,035 $493,115....10 Cost of goods sold11Interest expense12Net income . .1314206,000258,000...19,00054,00066,00015 Selected balance sheet and market price data at the end of the current year:1617Digitalized Zone Network18Current assets:19Cash ..20Short-term investments$23,000 $21,00038,00019,00021Current receivables, net43,000|2223 Inventories ...38,00064,00096,000 C DAВEGTotal assets266,000 $326,000Total current liabilities9 Total liabilities ..o Common stock, $1 par (12,000 shares)102,00096,000102,000131,00012,000$2 par (16,000 shares)32,000.2 Total stockholders' equity ...$164,000 $195,000-Market price per share of common stock .. $76.50 $94.994Dividends paid per common share ...$0.50 $0.40..7 Selected balance sheet data at the beginning of the current year:DigitalizedZone Network* Balance sheet:Current receivables, net$44,000 $53,000Inventories80,00086,000262,00012,000Total assets .276,0005 Common stock, $1 par (12,000 shares)$2 par (16,000 shares)32,000Your strategy is to invest in companies that have low price/earnings ratios butappear to be in good shape financially. Assume that you have analyzed all other8 factors and that your decision depends on the results of ratio analysis.

Ratio analysis is a very important technique of choosing between two investment opportunities. Some…

Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy. Debt Ratio Earning per share of common stocks Price/earning ration Dividend payout

Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy. Debt Ratio Earning per share of common stocks Price/earning ration Dividend payout

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy.

Debt Ratio

Earning per share of common stocks

Price/earning ration

Dividend payout

B c D E
F
G
1 Using ratios to decide between two stock investments
2
Assume that you are purchasing an investment and have decided to invest in a
company in the digital phone business. You have narrowed the choice to
3 Digitalized, Corp., and Zone Network, Inc., and have assembled the following
4
5 Selected income statement data for the current year:
6
7
Digitalized
Zone Network
9 Net sales (all on credit) . .
$
423,035 $
493,115
....
10 Cost of goods sold
11
Interest expense
12
Net income . .
13
14
206,000
258,000
...
19,000
54,000
66,000
15 Selected balance sheet and market price data at the end of the current year:
16
17
Digitalized Zone Network
18
Current assets:
19
Cash ..
20
Short-term investments
$
23,000 $
21,000
38,000
19,000
21
Current receivables, net
43,000|
22
23 Inventories ...
38,000
64,000
96,000

C D
A
В
E
G
Total assets
266,000 $
326,000
Total current liabilities
9 Total liabilities ..
o Common stock, $1 par (12,000 shares)
102,000
96,000
102,000
131,000
12,000
$2 par (16,000 shares)
32,000.
2 Total stockholders' equity ...
$
164,000 $
195,000-
Market price per share of common stock .. $
76.50 $
94.99
4
Dividends paid per common share ...
$
0.50 $
0.40
..
7 Selected balance sheet data at the beginning of the current year:
Digitalized
Zone Network
* Balance sheet:
Current receivables, net
$
44,000 $
53,000
Inventories
80,000
86,000
262,000
12,000
Total assets .
276,000
5 Common stock, $1 par (12,000 shares)
$2 par (16,000 shares)
32,000
Your strategy is to invest in companies that have low price/earnings ratios but
appear to be in good shape financially. Assume that you have analyzed all other
8 factors and that your decision depends on the results of ratio analysis.

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