Question
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
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
Digitized
Corp. and
VeryNetwork,
Inc. and have assembled the following data.
LOADING...
(Click
to view the income statementdata.)
Data Table
Selected income statement data for the currentyear:
Digitized
Very Network
Net Sales Revenue (all on credit)
$418,290
$494,940
Cost of Goods Sold
210,000
256,000
Interest Expense
0
15,000
Net Income
62,000
70,000
(Click
to view the balance sheet and market pricedata.)
Data Table
Selected balance sheet and market price data at the end of the currentyear:
Digitized
Very Network
Current Assets:
Cash
$24,000
$21,000
Short-term Investments
42,000
19,000
Accounts Receivables, Net
36,000
46,000
Merchandise Inventory
67,000
98,000
Prepaid Expenses
22,000
18,000
Total Current Assets
$191,000
$202,000
Total Assets
$264,000
$328,000
Total Current Liabilities
101,000
99,000
Total Liabilities
101,000
130,000
Common Stock:
$1 par (10,000 shares)
10,000
$2 par (14,000 shares)
28,000
Total Stockholders' Equity
163,000
198,000
Market Price per Share of Common Stock
111.60
125.00
Dividends Paid per Common Share
1.20
0.80
Selected balance sheet data at the beginning of the currentyear:
Digitized
Very Network
Balance sheet:
Accounts Receivables, net
$40,000
$49,000
Merchandise Inventory
81,000
88,000
Total Assets
262,000
277,000
Common Stock:
$1 par (10,000 shares)
10,000
$2 par (14,000 shares)
28,000
Your strategy is to invest in companies that have lowprice/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.
Requirements
1.
Compute the following ratios for both companies for the currentyear:
a.
Acid-test ratio
b.
Inventory turnover
c.
Days' sales in receivables
d.
Debt ratio
e.
Earnings per share of common stock
f.
Price/earnings ratio
g.
Dividend payout
2.
Decide whichcompany's stock better fits your investment strategy.
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Payroll Accounting 2019
Authors: Jeanette Landin, Paulette Schirmer
5th edition
125991707X, 978-1259917073
