Assume that you are purchasing an investment and have decided to invest in a company in the

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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:


Zonc Network 493,115 258,000 19,000 66,000 Digitalized 423,035 $ 206,000 Net sales (all on credit) Cost of goods sold In


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

Assume that you are purchasing an investment and have decided to


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

Assume that you are purchasing an investment and have decided to


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
1. Compute the following ratios for both companies for the current year, and decide which company's stock better fits your investment strategy.
(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) Dividendpayout

Balance Sheet
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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Financial and Managerial Accounting

ISBN: 978-0132497978

3rd Edition

Authors: Horngren, Harrison, Oliver

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