Use ratios to decide between two stock investments Use ratios to decide between two stock investments Assume that you are considering purchasing stock as an investment. You have narrowed the choice to ether Tarrant Corporation or Dallas Corporation stock and have assembled the following date for the two companies. Selected income data for the current year: Dallas Selected balance sheet data at the beginning of the current year: Tarrant Balance sheet Current receivable, net 141,000 198.000 Inventories 205,000 199,000 Total Assets 844.000 910,000 Long-term debt 310,000 Preferred stock: 9%, $175 par 35,000 Common stock, S1 par (115,000 shares) 115,000 $5 par (20,000 shares) 100,000 Total stockholder's equity 263,000 219.000 Net Income Cost of goods sold Income from operations Interest Expense Net Income Tarrant Dallas $601,000 $517,000 458,000 388,000 94,000 70,000 ol 10,000 $63,000 $32,000 Selected balance sheet and market price data at the end of the current year: Your strategy is to invest in companies that have low price-carning 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 your ratio analysis. Tarrant Dallas Current assets: Cash Short-term investments Current receivable, net Inventories Prepaid expenses Total Current Assets Total Assets Total current liabilities Total liabilities Preferred stock: 9%, $175 par Common stock, S1 par (115,000 shares) $5 par (20,000 shares) Total stockholder's equity Total liabilities and stockholder's equity Market price per share of common stock $26,000 $35,000 9,000 18,000 185,000 167.000 211,000 187.000 18,000 12,000 449,000 419.000 985,000 933.000 367.000 342.000 671.000 700.000 35,000 115,000 100,000 314,000 233,000 985,000 933,000 $5.50 $30.24 Requirements: 1. Calculate the following ratios for both companies for the current year, and decide which company's stock better fits your investment strategy a. Quick (acid-test) ratio b. Inventory turnover c. Day's sale in average receivables d. Debt ratio e. Times-interest-earned ratio f. Return on common stockholders' equity 8. Earnings per share of common stock h. Price-camnings ratio