Which company's stock better fits your investment strategy?
(Verge Corporation/U-Shop Company)
(higher than U-Shop/higher than Verge/lower than U-Shop/lower than Verge)
(U-Shop appears better than Verge/Verge appears better than U-Shop)
X Requirements 1. Compute 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. Days' sales 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 Print Done Data table Selected income statement data for the current year. U-shop 518,000 $ Net sales (all on credit) Cost of goods sold Income from operations Verge 605,000 $ 458,000 95,000 382,000 68,000 Interest expense 15,000 Net income 70,000 40,000 Print Done - X Data table Selected balance sheet and market price data at end of current year Verge U-shop Current assets: Cash 37,000 17,000 Short-term investments Current receivables, net 26,000 $ 2,000 182,000 208,000 13,000 Inventories 169.000 187,000 7,000 Prepaid expenses Total current assets 417,000 935,000 Total assets 431,000 983.000 367,000 669,000 Total current liabilities 331,000 710,000 35,000 115,000 Total liabilities Preferred stock, 9%, $175 par Common stock, $1 par (115,000 shares) $5 par (15,000 shares) Total stockholders' equity Market price per share of common stock 314,000 75,000 225,000 46.74 $ 8.54 $ Print Done - - Data table Selected balance sheet data at beginning of current year: Verge U-shop Balance sheet: $ 141,000 $ 195,000 Current receivables, net Inventories 206,000 198,000 845,000 914,000 304,000 35,000 Total assets Long-term debt Preferred stock, 9%, $175 par Common stock, $1 par (115,000 shares) $5 par (15,000 shares) Total stockholders' equity 115,000 75,000 219,000 258,000 Print Done Assume that you are considering purchasing stock as an investment. You have narrowed the choice to either Verge Corporation stock or U-shop Company stock and have assembled the following data for the two companies. Click the icon to view the income statement data) Click the icon to view data at end of current year) Click the icon to view data at beginning of current year) 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. Read the requirements OD Requirement 1. Compute the ratios for both companies for the current year and decide which company's stock better fits your investment strategy Begin by computing the ratios, starting with the quick (acid-test) ratio (Abbreviations used Avg = average, Cash" = cash and cash equivalents, Mkt = market, os = outstanding, SE - stockholders' equity, and ST = short-term) a. Quick (acid-test) ratio Select the formula and then enter the amounts to calculate the quick (acid-test) ratios (Round the ratios to two decimal places, XXX.) Quick ratio Verge U-shop b. Inventory turnover Select the formula and then enter the amounts to calculate the inventory tumover for each company. (Round the ratios to two decimal places, XXX) Inventory turnover Verge U-shop c. Days' sales in average receivables Select the formula and then enter the amounts to calculate days' sales in average receivables for each company (Use a 365-day year Round intermediary calculations to the nearest whole number, X Round your final answers to one decimal place, XX.) Days' sales in average receivables Verge U-shop d. Debt ratio Select the formula and then enter the amounts to calculate the debt ratio for each company (Enter the debt ratio in decimal form to two decimal places, XXX) Debt ratio Verge U-shop e. Times-interest-earned ratio Select the formula and then enter the amounts to calculate the times interest-earned ratio for U-shop. (Round the ratio to one decimal place, XX.) Times-interest-earned ratio U-shop % f. Return on common stockholders' equity Select the formula and then enter the amounts to calculate the return on common stockholders' equity (ROE) for each company (Complete all answer boxes. If an account has a zero balance, enter a "0" Enter the ROE as a percentage rounded to the nearest one-tenth percent. XX%) ROE Verge U-shop ) - % 9. Earnings per share of common stock Select the formula and then enter the amounts to calculate earnings per share (EPS) for each company (Complete all answer boxes If an account has a zero balance, enter a "0" Round EPS to two decimal places, XXX) EPS Verge ) U-shop h. Price-earnings ratio Select the formula and then enter the amounts to calculate the price-earnings (P/E) ratio for each company (Enter amounts in the formula to two decimal places XXX but then round the P/E ratios to one decimal place, XXas needed) P/E ratio Verge U-shop Verge U shop Which company's stock better fits your investment strategy? The common stock of seems to fit the investment strategy better. Its price-camnings ratio is and
