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

BetterDigital Corp. and VeryNetwork, Inc. and have assembled the following data.

Selected income statement data for the current year:

	Best Digital	Very Network
Net Sales Revenue (all on credit)	$421,940	$498,955
Cost of Goods Sold	210,000	257,000
Interest Expense	0	14,000
Net Income	50,000	68,000

Selected balance sheet and market price data at the end of the current year:

	Better Digital	Very Network
Current Assets:
Cash	$27,000	$22,000
Short-term Investments	43,000	14,000
Accounts Receivables, Net	36,000	43,000
Merchandise Inventory	64,000	100,000
Prepaid Expenses	21,000	16,000
Total Current Assets	$191,000	$195,000
Total Assets	$260,000	$324,000
Total Current Liabilities	103,000	97,000
Total Liabilities	103,000	131,000
Common Stock:
$1 par (10,000 shares)	10,000
$1 par (15,000 shares)		15,000
Total Stockholders' Equity	157,000	193,000
Market Price per Share of Common Stock	70.00	122.31
Dividends Paid per Common Share	1.20	1.10

Selected balance sheet data at the beginning of the current year:

	Better Digital	Very Network
Balance sheet:
Accounts Receivables, net	$43,000	$54,000
Merchandise Inventory	86,000	90,000
Total Assets	258,000	274,000
Common Stock:
$1 par (10,000 shares)	10,000
$1 par (15,000 shares)		15,000

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

Acid-test ratio

=

(Cash + Short-term investments + Accounts receivable, net) Total current liabilities

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

	Better Digital	Very Network
Acid-test ratio

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

Inventory turnover

=

Cost of goods sold Average merchandise inventory

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

	Better Digital	Very Network
Inventory turnover

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

Days' sales in receivables

=

365 Accounts receivable turnover ratio

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.)

	Better Digital	Very Network
Days' sales in receivables

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

Debt ratio

=

Total liabilities Total asset

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

	Better Digital	Very Network
Debt ratio		%		%

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

Earnings per share
of common stock	=	(Net income - Preferred dividends) Weighted average number of common share outstanding

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

	Better Digital	Very Network
Earnings per share of common stock	$	$

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

Price/earnings ratio

=

Market price per share of common stock Earnings per share

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

	Better Digital	Very Network
Price/earnings ratio

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

Dividend payout

=

Annual dividend per share Earnings per share

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%.)

	Better Digital	Very Network
Dividend payout		%		%

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

________ common stock seems to fit the investment strategy better. Its price/earnings ratio is lower than ____________, and ____________ appears in better shape financially than ____________. On the majority of the ratios, __________ looks better than ____________.