Assume that you are purchasing an investment and have decided to invest in a company in the digital phone business. You have narrowed the choice to

Digitalized

Corp. and

Very Zone,

Inc. and have assembled the following data.

(Click to view the income statement data.)

(Click to view the balance sheet and market price data.)

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Part 1

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.

Read the requirements.

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Part 1

Requirement 1a. Compute the acid-test ratio for both companies for the current year.

Begin by selecting the formula to compute the acid-test ratio.

Acid-test ratio

=

Part 2

Now, compute the acid-test ratio for both companies. (Round your answers to two decimal places, X.XX.)

	Digitalized	Very Zone
Acid-test ratio

Part 3

Requirement 1b. Compute the inventory turnover for both companies for the current year.

Begin by selecting the formula to compute the inventory turnover.

Inventory turnover

=

Part 4

Now, compute the inventory turnover for both companies. (Round your answers to two decimal places, X.XX.)

	Digitalized	Very Zone
Inventory turnover

Part 5

Requirement 1c. Compute the days' sales in receivables for both companies for the current year.

Begin by selecting the formula to compute the days' sales in receivable.

Days' sales in receivables

=

Part 6

Now, compute the days' sales in receivables for both companies. (Round interim calculations to two decimal places and your final answers to the nearest whole day.)

	Digitalized	Very Zone
Days' sales in receivables

Part 7

Requirement 1d. Compute the debt ratio for both companies for the current year.

Begin by selecting the formula to compute the debt ratio.

Debt ratio

=

Part 8

Now, compute the debt ratio for both companies. (Round your answers to the one tenth of a percent, X.X%.)

	Digitalized		Very Zone
Debt ratio		%		%

Part 9

Requirement 1e. Compute the earnings per share of common stock for both companies for the current year.

Begin by selecting the formula to compute the earnings per share of common stock.

Earnings per share
of common stock	=

Part 10

Now, compute the earnings per share of common stock for both companies. (Round your answers to the nearest cent.)

	Digitalized	Very Zone
Earnings per share of common stock

Part 11

Requirement 1f. Compute the price/earnings ratio for both companies for the current year.

Begin by selecting the formula to compute the price/earnings ratio.

Price/earnings ratio

=

Part 12

Now, compute the price/earnings ratio for both companies. (Round interim and final answers to two decimal places, X.XX.)

	Digitalized	Very Zone
Price/earnings ratio

Part 13

Requirement 1g. Compute the dividend payout for both companies for the current year.

Begin by selecting the formula to compute the dividend payout.

Dividend payout

=

Part 14

Now, compute the dividend payout for both companies. (Round interim answers to two decimal places, X.XX, and your final answers to the nearest whole percent, X%.)

	Digitalized		Very Zone
Dividend payout		%		%

Part 15

Requirement 2. Decide which company's stock better fits your investments strategy.

Digitalized's

Very Zone's

common stock seems to fit the investment strategy better. Its price/earnings ratio is

higher than that of Digitalized,

higher than that of Very Zone,

lower than that of Digitalized,

lower than that of Very Zone,

and

Digitalized appears in better shape financially than Very Zone

Very Zone appears in better shape financially than Digitalized

. On the majority of the ratios,

Digitalized looks better than Very Zone.

Very Zone looks better than Digitalized.