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 Better Digital Electronics or Zone Plus Electronics and have assembled the following data.

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.

Better Digital Zone Plus Current assets: Cash $ 27,500 $ 22,500 Short-term investments Current receivables, net ...... $ 44,090 $ 18,480 $ .. 38,500 $ 43,500 Inventories .... $ 63,000 $ 8,910 $ Prepaid expenses 106,000 14,520 $ Total current assets $ 182,000 $ 205,000 Total assets $ 315,625 $ 327,500 Total current liabilities $ 101,000 $ 96,000 Total liabilities $ 101,000 $ 131,000 10,000 Common stock: $1 par, (10,000 shares) .. $ Common stock: $1 par, (15,000 shares) Total stockholders' equity $ Market price per share of common stock $ $ 15,000 ... 214,625 $ 196,500 91.20 $ 91.00 - Income statement Zone Plus Better Digital $ 474,500 $ $ 213,000 $ 518,300 Net sales (all on credit) Cost of goods sold . 221,000 $ 20,000 Interest expense Net income $ 57,000 $ 78,000 Print Done Better Digital Zone Plus Current receivables, net $ -- 44,050 $ 44,540 Inventories $ 87,000 $ 56,500 Total assets $ 258,000 $ 278,000 $ 10,000 Common stock: $1 par, (10,000 shares) Common stock: $1 par, (15,000 shares) $ 15,000 Requirement 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 are on credit. a. Acid-test ratio b. Inventory turnover c. Days' sales in average receivables d. Debt ratio e. Gross profit percentage f. Earnings per share of common stock g. Price/earnings ratio Print Done