Assume you are purchasing an investment and decide to invest in a company in the home remodelling business. You narrow the choice to Bob’s Home Repair, Inc. or Stellar Stability, 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 shares 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 shares better fit your investment strategy.
a. Quick ratio
b. Inventory turnover
c. Days’ sales in receivables 
d. Debt ratio
e. Earnings per share of common shares
f. Price/earnings ratio

  • CreatedJuly 08, 2015
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