Assume that you are considering purchasing stock as an investment. You have narrowed the choice to either Border Corporation stock or Celebration Company stock and have assembled the following data for the two companies.

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 your ratio analysis.

Requirements

1. Calculate 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

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Border Celebration Net sales (all on credit). Cost of goods sold. . Income from operations. Interest expense. Net income $601,000 458,000 94,000 $517,000 388,000 . 70,000 10,000 63,000 32,000 Border Celebration Current assets: Cash . $ 26,000 $ 35,000 Short-term investments 9,000 18,000 Current receivables, net 185,000 167,000 Inventories. 211,000 187,000 Prepaid expenses.. 18,000 12,000 Total current assets. 449,000 419,000 Total assets 985,000 933,000 Total current liabilities . 367,000 342,000 Total liabilities 671,000 700,000 Preferred stock: 9%, $175 par. 35,000 Common stock, $1 par (115,000 shares). . $5 par (20,000 shares). 115,000 100,000 Total stockholders' equity 314,000 233,000 Market price per share of common stock . 5.50 $ 30.24