Chapter 15, Problem 15.31AP

Using ratios to evaluate a stock investment

Comparative financial statement data of Dangerfield, Inc. follow:

* Selected 2014 amounts

1. 1. Marker price of Dangerfield's common stock: $76.67 at December 31, 20 16, and $37.20 at December 31, 2015.
2. 2. Common shares outstanding: 13,000 during 2016 and 11,000 during 2015 and 2014.
3. 3. All sales are on credit.

Requirements

1. 1. Compute the following ratios for 2016 and 2015:
   1. a. Current ratio
   2. b. Cash ratio
   3. c. Times-interest-earned ratio
   4. d. Inventory turnover
   5. e. Gross profit percentage
   6. f. Debt to equity ratio
   7. g. Rate of return on common stockholders' equity
   8. h. Earnings per share of common stock
   9. i. Price/earnings ratio
2. 2. Decide (a) whether Dangerfield’s ability to pay debts and to sell inventory improved or deteriorated during 2016 and (b) whether the investment attractiveness of its common stock appears to have increased or decreased.