Assume that you are considering purchasing stock as an investment. You have narrowed the choice to either Verge Corporation stock or Express Company stock and have assembled the following data for the two companies.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.

Selected income statement data for the current year:

	Verge	Express
Net sales (all on credit). . . . . . . . . . . . . . . .	$599,000	$527,000
Cost of goods sold. . . . . . . . . . . . . . . . . . . .	458,000	382,000
Income from operations. . . . . . . . . . . . . . .	91,000	69,000
Interest expense. . . . . . . . . . . . . . . . . . . . .		10,000
Net income. . . . . . . . . . . . . . . . . . . . . . . . . .	70,000	34,000

Selected balance sheet and market price data at end of currentyear:

	Verge	Express
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . .	$28,000	$38,000
Short-term investments. . . . . . . . . .	7,000	13,000
Current receivables, net. . . . . . . . . . .	189,000	168,000
Inventories. . . . . . . . . . . . . . . . . . . . . .	219,000	190,000
Prepaid expenses. . . . . . . . . . . . . . . .	18,000	12,000
Total current assets. . . . . . . . . . . . . . .	461,000	421,000
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . .	975,000	936,000
Total current liabilities. . . . . . . . . . . . . . . . .	364,000	340,000
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . .	666,000	693,000
Preferred stock, 9%, $150 par. . . . . . . . . . . .		30,000
Common stock, $1 par (115,000 shares). . . .	115,000
$5 par (10,000 shares)		50,000
Total stockholders' equity. . . . . . . . . . . . . . . .	309,000	243,000
Market price per share of common stock. . . .	$7.32	$65.73

Selected balance sheet data at beginning of current year:

	Verge	Express
Balance sheet:
Current receivables, net. . . . . . . . . . . . . . . . .	$146,000	$192,000
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . .	205,000	193,000
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . .	852,000	914,000
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . .		311,000
Preferred stock, 9%, $150 par. . . . . . . . . . . .		30,000
Common stock, $1 par (115,000 shares). . . .	115,000
$5 par (10,000 shares)		50,000
Total stockholders' equity. . . . . . . . . . . . . . . .	265,000	219,000

1.	Compute the following ratios for both companies for the currentyear, 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

Requirement 1. Compute the ratios for both companies for the current year and decide which company's stock better fits your investment strategy. Begin by computing the ratios, starting with the quick(acid-test) ratio. (Abbreviations used: Avg. = average, Cash* = cash and cash equivalents, Mkt = market, o/s = outstanding, SE= stockholders' equity, and ST = short-term.) a. Quick (acid-test) ratio Select the formula and then enter the amounts to calculate the quick (acid-test) ratios. (Round the ratios to two decimalplaces, X.XX.) ( + + ) / = Quick ratio Verge ( + + ) / = Express ( + + ) / = b. Inventory turnover Select the formula and then enter the amounts to calculate the inventory turnover for each company. (Round the ratios to two decimal places, X.XX.) / = Inventory turnover Verge / = Express / = c. Days' sales in average receivables Select the formula and then enter the amounts to calculate days' sales in average receivables for each company. (Use a 365-day year. Round intermediary calculations to the nearest whole number, X. Round your final answers to one decimal place, X.X.) / = Days' sales in average receivables Verge / = Express / = d. Debt ratio Select the formula and then enter the amounts to calculate the debt ratio for each company. (Enter the debt ratio in decimal form to two decimal places, X.XX.) / = Debt ratio Verge / = Express / = e. Times-interest-earned ratio Select the formula and then enter the amounts to calculate thetimes-interest-earned ratio for Express. (Round the ratio to one decimal place, X.X.) / = Times-interest-earned ratio Express / = f. Return on common stockholders' equity Select the formula and then enter the amounts to calculate the return on common stockholders' equity (ROE) for each company.(Complete all answer boxes. If an account has a zero balance, enter a "0". Enter the ROE as a percentage rounded to the nearestone-tenth percent, X.X%.) ( - ) / = ROE Verge ( - ) / = % Express ( - ) / = % g. Earnings per share of common stock Select the formula and then enter the amounts to calculate earnings per share (EPS) for each company. (Complete all answer boxes. If an account has a zero balance, enter a "0". Round EPS to two decimal places, X.XX.) ( - ) / = EPS Verge ( - ) / = Express ( - ) / = h. Price-earnings ratio Select the formula and then enter the amounts to calculate theprice-earnings (P/E) ratio for each company. (Enter amounts in the formula to two decimal places, X.XX, but then round the P/E ratios to one decimal place, X.X, as needed.) / = P/E ratio Verge / = Express / = Which company's stock better fits your investment strategy?

The common stock of

Express Company

Verge Corporation

seems to fit the investment strategy better. Its price-earnings ratio is

higher than that of Express Company

higher than that of Verge Corporation

lower than that of Express Company

lower than that of Verge Corporation

,

and

Express Company appears to be in slightly better shape than Verge Corporation

Verge Corporation appears to be in slightly better shape than Express Company

.