Learning Objective 4 1. Digitalized e. $4.25 P15-28A Using ratios to decide between two stock investments Assume that you are purchasing an investment and have decided to invest in a com pany in the digital phone business. You have narrowed the choice to Digitalized Corp. and Every Zone, Inc. and have assembled the following data. Selected income statement data for the current year: Digitalized $423,035 210,000 Net Sales Revenue (all on credit) Cost of Goods Sold Interest Expense Net Income Every Zone $493,845 260,000 19,000 72,000 51,000 Selected balance sheet and market price data at the end of the current year Digitalized Every Zone Current Assets: Cash Short-term Investments Accounts Receivable, Net Merchandise Inventory Prepaid Expenses Total Current Assets Total Assets Total Current Liabilities Total Liabilities Common Stock: 51 par (12,000 shares) $1 par (17,000 shares) Total Stockholders' Equity Market Price per Share of Common Stock Dividends Paid per Common Share $ 24,000 40,000 40,000 66,000 23,000 $ 193,000 $ 266,000 105,000 105,000 $ 17,000 14,000 48,000 97,000 12,000 $ 188,000 $ 323,000 96,000 128,000 12,000 161,000 76.50 1.10 17,000 195,000 114.48 1.00 Selected balance sheet data at the beginning of the current year: Digitalized Every Zone Balance Sheet: Accounts Receivable, net Merchandise Inventory Total Assets Common Stock: $1 par (12,000 shares) $1 par (17,000 shares) $ 41,000 81,000 261,000 $ 54,000 87,000 272,000 12,000 17,000 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: a. Acid-test ratio e. Earnings per share of common stock b. Inventory turnover f. Price/earnings ratio c. Days' sales in receivables d. Debt ratio g. Dividend payout 2. Decide which company's stock better fits your investment strategy