Concept Introduction Acid-Test Ratio: Acid-Test Ratio is a financial liquidity ratio that measures the ability of an organization to meet its short-term obligations with its quick assets. The quick assets usually include cash, marketable securities and accounts receivables. It is measured as a ratio of quick assets to current liabilities. Inventory Turnover: Inventory Turnover is a financial efficiency ratio that indicates how effectively and efficiently an organization manages its inventory. It measures how many times an organization sells and replaces its inventory during a period. It is calculated by diving cost of goods sold by average inventory during a period. Days’ Sales in receivables: Days’ Sales in receivables is a financial ratio that measures the average number of days that an organization takes to collect money on its accounts receivables. It is calculated by dividing net receivables by average net credit sales per day. Debt Ratio: Debt ratio is a financial ratio that shows the percentage of total assets that is financed by the total liabilities of a company. Earnings per Share: Earnings per Share (EPS) is a financial profitability ratio that measures the amount of net income available to common stockholders earned on one share. It is calculated by dividing net income available to common stockholders by the average (or weighted average) number of shares outstanding during a period. Price Earnings Ratio: Price Earnings Ratio is a financial ratio for valuing a company’s stock in the market that shows what the investors are willing to pay for $1 of the company’s earnings. It is measured as a ratio of market price per share of a company’s stock to the earnings per share for a particular period. Dividend Payout Ratio: Dividend Payout Ratio is a financial ratio that shows the percentage of a company’s earnings that is paid in the form of dividends. It is calculated by dividing dividend per share by earnings per share (EPS) for a particular period. 1. To Compute: The given ratios for Digital Plus, Inc. and Red Zone, Inc. for the current year.

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Chapter 17, Problem P17.39BPGB

To determine

Concept Introduction

Acid-Test Ratio: Acid-Test Ratio is a financial liquidity ratio that measures the ability of an organization to meet its short-term obligations with its quick assets. The quick assets usually include cash, marketable securities and accounts receivables. It is measured as a ratio of quick assets to current liabilities.

Inventory Turnover: Inventory Turnover is a financial efficiency ratio that indicates how effectively and efficiently an organization manages its inventory. It measures how many times an organization sells and replaces its inventory during a period. It is calculated by diving cost of goods sold by average inventory during a period.

Days’ Sales in receivables: Days’ Sales in receivables is a financial ratio that measures the average number of days that an organization takes to collect money on its accounts receivables. It is calculated by dividing net receivables by average net credit sales per day.

Debt Ratio: Debt ratio is a financial ratio that shows the percentage of total assets that is financed by the total liabilities of a company.

Earnings per Share: Earnings per Share (EPS) is a financial profitability ratio that measures the amount of net income available to common stockholders earned on one share. It is calculated by dividing net income available to common stockholders by the average (or weighted average) number of shares outstanding during a period.

Price Earnings Ratio: Price Earnings Ratio is a financial ratio for valuing a company’s stock in the market that shows what the investors are willing to pay for $1 of the company’s earnings. It is measured as a ratio of market price per share of a company’s stock to the earnings per share for a particular period.

Dividend Payout Ratio: Dividend Payout Ratio is a financial ratio that shows the percentage of a company’s earnings that is paid in the form of dividends. It is calculated by dividing dividend per share by earnings per share (EPS) for a particular period.

1.

To Compute: The given ratios for Digital Plus, Inc. and Red Zone, Inc. for the current year.

To determine

2.

A company’s stock that better fits the investment strategy.

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