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The Covid-19 crisis led to a sharp drop in revenue and, as a result, the depletion of cash, debt servicing problems and, in some cases,

  1. The Covid-19 crisis led to a sharp drop in revenue and, as a result, the depletion of cash, debt servicing problems and, in some cases, bankruptcy. If you could invest $100,000 in one company, based only on the five ratios below, which stock would be the most suitable to buy?

    a.

    Stock D: P/E = 25.0; cash ratio = 0.2x; EBIT/Interest = 2.1x; Debt/equity = 70%; ROIC = 8%

    b.

    Stock B: P/E = 17.5; cash ratio = 0.4x; EBIT/Interest = 7x; Debt/equity = 45%; ROIC = 12%

    c.

    Stock A: P/E = 15.0; cash ratio = 0.6x; EBIT/Interest = 10x; Debt/equity = 30%; ROIC = 14%

    d.

    Stock C: P/E = 20.0; cash ratio = 0.9x; EBIT/Interest = 15x; Debt/equity = 25%; ROIC = 16%

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