Learning Obj PC-28A Using ratios to decide between two stock investments purchasing an investment and have decided to invest in a com- Assume that you are pany in the digital phone business. You have narrowed the choice to Digitalized Corp and Every Zone, Inc. and have assembled the following data. 1. Digitalized e. Selected income statement data for the current year: Digitalized Every Zone $ 493,845 $ 423,035 Net Sales Revenue (all on credit) 260,000 210,000 Cost of Goods Sold 19,000 0 Interest Expense 72,000 51,000 Net Income Selected balance sheet and market price data at the end of the current year Every Zone Digitalized Current Assets $ 17,000 $ 24,000 Cash 14,000 40,000 Short-term Investments 48,000 40,000 Accounts Receivable, Net 97,000 66,000 Merchandise Inventory 23,000 12,000 Prepaid Expenses $ 188,000 $ 193,000 Total Current Assets $ 266,000 $323,000 Total Assets 105,000 96,000 Total Current Liabilities 105,000 128,000 Total Liabilities Common Stock: 12,000 $1 par (12,000 shares) 17,000 $1 par (17,000 shares) 161,000 195,000 Total Stockholders' Equity 114.48 Market Price per Share of Common Stock 76.50 1.10 1.00 Dividends Paid per Common Share Sclected balance sheet data at the beginning of the current year Digitalized Every Zone Balance Sheet: $ 41,000 Accounts Receivable, net $ 54,000 Merchandise Inventory 87,000 81,000 Total Assets 261,000 272,000 Common Stock $1 par (12,0000 shares) 12,000 $1 par (17,000 shares) 17,000 escretse NPST 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. Requirements 1. Compute the following ratios for both companies for the current year: e. Earnings per share of common stock Acid-test ratio a. b. Inventory turnover f. Price/earnings ratio Days' sales in receivables c. g. Dividend payout d. Debt ratio 2. Decide which company's stock better fits your investment strategy