Use ratios to decide between two stock investments Use ratios to decide between two stock investments Selected balance sheet data at the beginning of the current year: 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. Tarrant Dallas Selected income data for the current year: 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 01 10.000 $63,000 $32,000 Balance sheet: Current receivable, net Inventories Total Assets Long-term debt Preferred stock: 9%, $175 par Common stock, $1 par (115,000 shares) $5 par (20,000 shares) Total stockholder's equity 141,000 198,000 205,000 199,000 844.000 910,000 310,000 35,000 115,000 100,000 263,000 219.000 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-earning 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 9,000 185,000 211,000 18,000 449,000 985,000 367,000 671,000 $35,000 18,000 167.0001 187.000 12.0001 419.0001 933.000 342,000 700.000 35,000 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 6. Inventory turnover c. Day's sale in average receivables d. Debt ratio e. Times-interest-earned ratio f. Return on common stockholders' equity g. Earnings per share of common stock h. Price-earnings ratio 115.000 314.000 985.000 $5.50 100.000 233,000 933,000 $30.24