Assume you are purchasing an investment and decide to invest in a company in the home remodeling business. You narrow the choice to Bob’s Home Repair, Inc., or Stellar Stability, Corp. You assemble the following selected data.

Selected income statement data for 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.

a. Quick ratio

b. Inventory turnover

c. Days’ sales in receivables

d. Debt ratio

e. Earnings per share of common stock

f. Price/earnings ratio

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Net Sales (all on credit).. Cost of Goods Sold.. Income from Operations Interest Expense Bob's Home Repair, Inc. Stellar Stability, Corp. $282,000 158,000 88,000 15,000 44,000 $226,000 129,000 48,000 - Net Income. 24,000 Selected balance sheet and market price data at the end of the current year follow: Bob's Home Repair, Inc. Stellar Stability, Corp. Current Assets: Cash. $ 13,000 $ 14,000 Short-Term Investments. Accounts Receivable, Net. Inventory......... Prepaid Expenses.. Total Current Assets. 12,000 15,000 30,000 25,000 69,000 50,000 5,000 4,000 129,000 108,000 Total Assets 201,000 166,000 Total Current Liabilities 54,000 68,000 Total Liabilities.. 80,000 71,000 Preferred Stock, 5%, $100 Par. 18,000 Common Stock, $1.00 Par, 7,000 Shares..... 7,000 $2.50 Par, 4,000 Shares..... 10,000 Total Stockholders' Equity. 121,000 95,000 Market price per share of common stock...... $ 43.12 $ 30.87