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Requirement             1.      Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy.   a.   Acid-test ratio             b.   Inventory  turnover           c.   Days’ sales in receivables

Requirement             1.      Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy.   a.   Acid-test ratio             b.   Inventory  turnover           c.   Days’ sales in receivables

FINANCIAL ACCOUNTING
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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Requirement            
1.      Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy.
  a.   Acid-test ratio          
  b.   Inventory  turnover        
  c.   Days’ sales in receivables        
  d.   Debt ratio          
  e.   Earnings per share of common stock      
  f.    Price/earnings ratio        
  g.   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
Transcribed Image Text: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.
Transcribed Image Text: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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