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

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

Selected balance sheet data at beginning of 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.

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 is12%.

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CDRom.com Web Stores Net sales (all on credit)$601,000 $523,000 455,000 382,000 95,000 76,000 ー 11,000 68,000 39,000 Cost of goods sold ncome from o Interest expense... CDRom.com Web Stores Current assets: Cash Short-term investiments Current receivables, net Inventories Prepaid expenses Total current assets S 31,000 S 36,000 11,000 182,000 165,000 208,000 184,000 14,000 443,000 410,000 984,000 927,000 368,000 332,000 665,000 710,000 20,000 7,000 15,000 Total as Total current liabilities Total liabilities Preferred stock, 6%, $100 par Common stock, $1 par (150,000 shares)150,000 $5 par (10,000 shares).. 50,000 319,000 217,000 Market price per share of common stock...S 4.95 S 64.26 Total stockholders' equity CDRom.com Web Stores Balance sheet: Current receivables, net. Inventories... Total a Long-term deb Preferred stock, 6%, $100 par Common stock, $1 par (150,000 shares.150,000 lio 204,000 198,000 841,000 912,000 ー 307,000 20,000 50,000 263,000 217,000 S5 par (10,000 shares.. Total stockholders' equity..