Assume that you are considering purchasing stock as an investment. You have narrowed the choice to Topline.com

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

Assume that you are considering purchasing stock as an investment. 173912

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

Assume that you are considering purchasing stock as an investment. 173912

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

Assume that you are considering purchasing stock as an investment. 173912

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. Quick (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 is6%.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Financial accounting

ISBN: 978-0132751124

9th edition

Authors: Walter T. Harrison Jr., Charles T. Horngren, C. William Thom

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