Assume you are purchasing an investment and decide to invest in a company in the home remodeling business. You narrow the choice to Welcome Home, Inc., or Brick Town, Corp. You assemble the following selected data:
Selected income statement data for the current year follow:

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

Selected balance sheet data at the beginning of the current year follow:

Your investment strategy is to purchase the stock of the company that has a low price/earnings ratio but appears to be in good shape financially. Assume that you analyzed all other factors and your decision depends on the results of the ratio analysis to be performed.

Requirement
1. Compute the following ratios for both companies for the current year and decide which company€™s stock better fits your investment strategy. Assume all sales on credit.
a. Quick ratio
b. Debt ratio
c. Interest coverage ratio
d. Accounts receivable turnover
e. Inventory turnover
f. Total asset turnover
g. Return on assets
h. Return on equity
i. Earnings per share
j. Price earningsratio

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Welcome Home, Inc. Brick Town, Corp. Net Sales Cost of Goods Sold. EBIT Interest Expense.... Net Income ..$200,000 86,000 18,000 60,000 $223,000 141,000 96,000 9,000 83,000 Welcome Home, Inc Brick Town, Corp Current Assets S 26,000 33,000 36,000 50,000 Cash Short-Term Investments... Accounts Receivable, Net Inventory Prepaid Expenses Total Current Assets 59,000 44,000 25,000 52,000 1.000 181,000 239,000 48,000 87,000 12,000 3 3 152,000 242,000 79,000 Total Asset:s Total Current Liabilies... Total Liabilities Common Stock, $2.00 Pr, 6,000 Shares 99.000 5 $5.00 Par, ,000 Shares25,000 143,000 S 50 152,000 Total Stockholders' Equity Market price per share of common stock S 55 Accounts Receivable, Net Inventory Total Assets Common Stock, $2.00 Par, 6,000 Shares Welcome Home, Inc. S 38,000 74,000 250,000 Brick Town, Corp. 12,000 60,000 175,000 12,000 $5.00 Par, 5,000 Shares 25,000 125,000 Total Stockholders' Equity 164,000