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:

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

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

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

Transcribed Image Text:

Zonc Network 493,115 258,000 19,000 66,000 Digitalized 423,035 $ 206,000 Net sales (all on credit) Cost of goods sold Interest expense Net income ... 54,000 ..........