Assume that you are considering purchasing stock as an investment. You have narrowed the choice to CDROM.com and E-shop Stores and have assembled the following data.
Selected income statement data for current year:

Selected balance sheet and market price data at the end of the current year:

Selected balance sheet data at the beginning of the current year:

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.

Requirements
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 average receivables
d. Debt ratio
e. Times-interest-earned ratio
f. Return on common stockholders equity
g. Earnings per share of common stock
h. Price/earnings ratio
2. Compute each company€™s economic-value-added (EVA) measure and determine whether the companies EVA s confirm or alter your investment decision. Each company€™s cost of capital is12%.

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CDROM E-Shop Net sales (all on credit)..$597,000 $516,000 Cost of goods sold455,000 388,000 89,000 70,000 ー 13,000 39,000 Income from operations.. Net income. CDROM E-S Current assets: Cash Short-term investments Current receivables, net 24,000 41,000 5,000 15,000 185,000 165,000 219,000 187,00 ven Prepaid expenses....21,000 11,000 454,000 419,000 978,000 928,000 363,000 332,000 663,000 693,000 30,000 Total current assets Total asse Total current liabilities Total liabilities Preferred stock: 6%, $150 par Common stock, $1 par (100,000 share. 100,000 $5 par (10,000 shares). Total stockholders' equity Market price per share of common stock 50,000 315,000 235,000 ...8.84 70.68 CDROM E-Shop Balance sheet: Current receivables, ne$143,000 Inventories. Total assets.843,000 Long-term deb. Preferred stock, 696, $150 par Common stock, $1 par (100,000 $190,000 202,000 195,000 914,000 ー 300,000 30,000 shares)...n 100,000 $5 par (10,000 shares 50,000 Total stockholders' equity259,000 220,000