Assume that you are purchasing an investment and have decided to invest in a company in the smartphone business. You have narrowed the choice to NT Electronics or Xoom Corporation and have assembled the following data. Selected income statement data for the current year follows:
NT Xoom
Net sales (all on credit) .................................................. $401,500............... $554,800
Cost of goods sold ......................................................... $209,000................ $231,000
Interest expense ....................................................................... -................. $ 16,500
Net income ...................................................................... $ 49,000............... $ 63,000
Selected balance sheet data at the beginning of the current year follows:
NT Xoom
Current receivables, net .................................................... $ 34,300.................. $ 53,480
Inventories ......................................................................... $ 86,000................. $ 77,000
Total assets ........................................................................ $259,000............... $271,000
Common stock:
$1 par (13,000 shares) ..................................................... $ 10,000
$1 par (16,000 shares) .......................................................................................... $ 14,000
Selected balance sheet and market-price data at the end of the current year follows:

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.
Requirement
Compute the following ratios for both companies for the current year and decide which company's stock better fits your investment strategy.
a. Acid-test ratio
b. Inventory turnover
c. Days' sales in average receivables
d. Debt ratio
e. Earnings per share of common stock
f. Price/earnings ratio

Transcribed Image Text:

NT Xoom Current assets: Cash Short-term investments Current receivables, net Inventories Prepaid expenses Total current assets Total assets $ 22,000 21,200 40,000 98,000 6,800 $186,000 $188,000 $436,000 $434,375 $109,000 $104,000 $109,000 $139,000 S 30,500 52,220 35,000 66,000 2,280 Total current liabilities Total liabilities Common stock: $1 par (13,000 shares) $1 par (16,000 shares) Total stockholders' equity $ 10,000 $ 14,000 $372,000 $295,375 $ 81.90 Market price per share of common stock $ 73.50