Assume you are purchasing an investment and decide to invest in a company in the home remodeling business. You narrow the choice to Welcome Home, Inc., or Brick Town, Corp. You assemble the following selected data:
Selected income statement data for the current year follow:

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

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

Your investment strategy is to purchase the stock of the company that has a low price/earnings ratio but appears to be in good shape financially. Assume that you analyzed all other factors and your decision depends on the results of the ratio analysis to be performed.

1. 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 on credit.
a. Quick ratio
b. Debt ratio
c. Interest coverage ratio
d. Accounts receivable turnover
e. Inventory turnover
f. Total asset turnover
g. Return on assets
h. Return on equity
i. Earnings per share
j. Price earningsratio

  • CreatedApril 29, 2014
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