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.

Requirements
1. Compute the following ratios for both companies for the current year:
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. Dividend payout
2. Decide which company’s stock better fits your investmentstrategy.

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Digitalized Zone Network Net Sales (all on credit) Cost of Goods Sold Interest Expense Net Income $ 493,115 258,000 19,000 66,000 $ 423,035 206,000 54,000 Digitalized Zone Network Current Assets: Cash Short-term Investments Accounts Receivables, Net Merchandise Inventory Prepaid Expenses Total Current Assets $ 23,000 38,000 38,000 64,000 21,000 $ 184,000 266,000 102,000 102,000 12,000 S 21,000 19,000 43,000 96,000 13,000 192,000 326,000 96,000 131,000 Total Assets Total Current Liabilities Total Liabilities Common Stock, $1 par (12,000 shares) $2 par (16,000 shares) Total Stockholders' Equity Market Price per Share of Common Stock Dividends Paid per Common Share 164,000 76.50 $ 0.50 32,000 195,000 5 94.99 S 0.40 Digitalized Zone Network Balance Sheet: Accounts Receivables, net Merchandise Inventory Total Assets 44,000 $ 80,000 53,000 86,000 276,000 Common Stock, $1 par (12,000 shares) $2 par (16,000 shares) 12,000 32,000