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:

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.

1. Compute the following ratios for both companies for the current year:
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
2. Decide which company’s stock better fits your investmentstrategy.

  • CreatedJanuary 16, 2015
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