Assume that you are purchasing an investment and have decided to invest in a company in the
Question:
Selected income statement data for the current year follows:
Selected balance sheet data at the beginning of the current year follow:
Selected balance sheet and market-price data at the end of the current year follow:
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
Compute the following ratios for both companies for the current year and decide which company's stock better fits your investment strategy. Assume all sales are on credit.
a. Acid-test ratio
b. Inventory turnover
c. Days' sales in average receivables
d. Debt ratio
e. Gross profit percentage
f. Earnings per share of common stock
g. Price/earnings ratio
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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