| | 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 Digitalized, Corp., and Zone Network, Inc., and have assembled the following data: |
| | Selected income statement data for the current year: |
| | | Digitalized | Zone Network |
| | Net sales (all on credit) | $423,035 | $493,115 |
| | Cost of goods sold | 206,000 | 258,000 |
| | Interest expense | --- | 19,000 |
| | Net income | 54,000 | 66,000 |
| | Selected balance sheet and market price data at the end of the current year: |
| | | Digitalized | Zone Network |
| | Current assets: |
| | Cash | $23,000 | $21,000 |
| | Short-term investments | 38,000 | 19,000 |
| | Current receivabales, net | 38,000 | 43,000 |
| | Inventories | 64,000 | 96,000 |
| | Prepaid expenses | 21,000 | 13,000 |
| | Total current assets | $184,000 | $192,000 |
| | Total assets | $266,000 | $326,000 |
| | Total current liabilities | 102,000 | 96,000 |
| | Total liabilities | 102,000 | 131,000 |
| | Common stock, $1 par (12,000 shares) | 12,000 |
| | $2 par (16,000 shares) | | 32,000 |
| | Total stockholder's equity | $164,000 | $195,000 |
| | Market price per share of common stock | $76.50 | $94.99 |
| | Dividends paid per common share | $0.50 | $0.40 |
| | 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 |
| | Total assets | 262,000 | 276,000 |
| | Common stock, $1 par (12,000 shares) | 12,000 |
| | $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 factors and that your decision depends on the results of ratio analysis. |
| | 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 |
urfanasy1849
week2_2.xlsx
