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 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.

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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

Century 21 Accounting Multicolumn Journal

11th Edition

ISBN:9781337679503

Author:Gilbertson

Publisher:Gilbertson

Chapter17: Financial Statement Analysis

Section17.4: Analyzing Financial Statements Using Financial Ratios

Problem 1WT

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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