Assume that you are considering purchasing stock as an investment. You have narrowed the choice to Topline.com and E-shop Stores and have assembled the following data. Selected income statement data for 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.

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 is6%.

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Topline.com E-Shop Stores Net sales (all on credit)..$598,000 $518,000 382,000 69,000 11,000 37,000 452,000 95,000 Cost of goods sold.... Income from operations Interest expense Net income 63,000 Topline.com E-Shop Stores Current assets: Cash Short-term investments Current receivables, net Inventories Prepaid expenses Total current assets S 28,000 36,000 11,000 166,000 219,000 186,000 13,000 458,000 412,000 935,000 371,000 340,000 663,000 700,000 30,000 9,000 187,000 15,000 984,000 Total assets Total current liabilities Total liabilities Preferred stock: 8%, $150 par Common stock, $1 par (100,000 shares100,000 55 par (10,000 shares 50,000 Total stockholders' equity Market price per share of common stock6.93 S 58.82 321,000 235,000 Topline.com E-Shop Stores Balance sheet: Current receivables, net Inventories Total a Long-term debt Preferred stock, 8%, $150 par Common stock, $1 par (100,000 shares100,000 $143,000 $194,000 212,000 199,000 913,000 310,000 30,000 853,000 $5 par (10,000 shares).. 50,000 219,000 Total stockholders' equity 259,000