P15-27A Using ratios to decide between two

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P15-27A Using ratios to decide between two stock investments [45–60 min]

Assume that you are purchasing an investment and have decided to invest in a com- pany in the digital phone business. You have narrowed the choice to Digitalized, Corp., and Zone Network, Inc., and have assembled the following data:

Selected income statement data for the current year:

Net sales (all on credit) . . . . . . . . . . . 423,035 493,115
Cost of goods sold . . . . . . . . . . . . . . 206,000 258,000
Interest expense . . . . . . . . . . . . . . . . 0 19,000
Net income . . . . . . . . . . . . . . . . . . . .54,000 66,000

and so on ....

Requirements

Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy.
a. Acid-test ratio
b. Inventory turnover
c. Days’ sales in receivables
d. Debt ratio
e. Earnings per share of common stock
f. Price/earnings ratio
g. Dividend payout