Assume that you are purchasing an investment and have decided to invest in a company in the digital phone business. You have narrowed the choice to Digitized Corp. and Very Network, Inc. and have assembled the following data. LOADING... (Click to view the income statement data.) Data Table Selected income statement data for the current year: Digitized Very Network Net Sales Revenue (all on credit) $418,290 $494,940 Cost of Goods Sold 210,000 256,000 Interest Expense 0 15,000 Net Income 62,000 70,000 (Click to view the balance sheet and market price data.) Data Table Selected balance sheet and market price data at the end of the current year: Digitized Very Network Current Assets: Cash $24,000 $21,000 Short-term Investments 42,000 19,000 Accounts Receivables, Net 36,000 46,000 Merchandise Inventory 67,000 98,000 Prepaid Expenses 22,000 18,000 Total Current Assets $191,000 $202,000 Total Assets $264,000 $328,000 Total Current Liabilities 101,000 99,000 Total Liabilities 101,000 130,000 Common Stock: $1 par (10,000 shares) 10,000 $2 par (14,000 shares) 28,000 Total Stockholders' Equity 163,000 198,000 Market Price per Share of Common Stock 111.60 125.00 Dividends Paid per Common Share 1.20 0.80 Selected balance sheet data at the beginning of the current year: Digitized Very Network Balance sheet: Accounts Receivables, net $40,000 $49,000 Merchandise Inventory 81,000 88,000 Total Assets 262,000 277,000 Common Stock: $1 par (10,000 shares) 10,000 $2 par (14,000 shares) 28,000 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. Requirements 1. Compute the following ratios for both companies for the current year: 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 2. Decide which company's stock better fits your investment strategy.

Assume that you are purchasing an investment and have decided to invest in a company in the digital phone business. You have narrowed the choice to Digitized Corp. and Very Network, Inc. and have assembled the following data. LOADING... (Click to view the income statement data.) Data Table Selected income statement data for the current year: Digitized Very Network Net Sales Revenue (all on credit) $418,290 $494,940 Cost of Goods Sold 210,000 256,000 Interest Expense 0 15,000 Net Income 62,000 70,000 (Click to view the balance sheet and market price data.) Data Table Selected balance sheet and market price data at the end of the current year: Digitized Very Network Current Assets: Cash $24,000 $21,000 Short-term Investments 42,000 19,000 Accounts Receivables, Net 36,000 46,000 Merchandise Inventory 67,000 98,000 Prepaid Expenses 22,000 18,000 Total Current Assets $191,000 $202,000 Total Assets $264,000 $328,000 Total Current Liabilities 101,000 99,000 Total Liabilities 101,000 130,000 Common Stock: $1 par (10,000 shares) 10,000 $2 par (14,000 shares) 28,000 Total Stockholders' Equity 163,000 198,000 Market Price per Share of Common Stock 111.60 125.00 Dividends Paid per Common Share 1.20 0.80 Selected balance sheet data at the beginning of the current year: Digitized Very Network Balance sheet: Accounts Receivables, net $40,000 $49,000 Merchandise Inventory 81,000 88,000 Total Assets 262,000 277,000 Common Stock: $1 par (10,000 shares) 10,000 $2 par (14,000 shares) 28,000 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. Requirements 1. Compute the following ratios for both companies for the current year: 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 2. Decide which company's stock better fits your investment strategy.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter7: Introduction To Financial Statement Analysis

Section: Chapter Questions

Problem 12E

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Question

Assume that you are purchasing an investment and have decided to invest in a company in the digital phone business. You have narrowed the choice to

Digitized

Corp. and

Very Network,

Inc. and have assembled the following data.

(Click

to view the income statement data.)

Data Table

Selected income statement data for the current year:

	Digitized	Very Network
Net Sales Revenue (all on credit)	$418,290	$494,940
Cost of Goods Sold	210,000	256,000
Interest Expense	0	15,000
Net Income	62,000	70,000

(Click

to view the balance sheet and market price data.)

Data Table

Selected balance sheet and market price data at the end of the current year:

	Digitized	Very Network
Current Assets:
Cash	$24,000	$21,000
Short-term Investments	42,000	19,000
Accounts Receivables, Net	36,000	46,000
Merchandise Inventory	67,000	98,000
Prepaid Expenses	22,000	18,000
Total Current Assets	$191,000	$202,000
Total Assets	$264,000	$328,000
Total Current Liabilities	101,000	99,000
Total Liabilities	101,000	130,000
Common Stock:
$1 par (10,000 shares)	10,000
$2 par (14,000 shares)		28,000
Total Stockholders' Equity	163,000	198,000
Market Price per Share of Common Stock	111.60	125.00
Dividends Paid per Common Share	1.20	0.80

Selected balance sheet data at the beginning of the current year:

	Digitized	Very Network
Balance sheet:
Accounts Receivables, net	$40,000	$49,000
Merchandise Inventory	81,000	88,000
Total Assets	262,000	277,000
Common Stock:
$1 par (10,000 shares)	10,000
$2 par (14,000 shares)		28,000

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.

Requirements

1.	Compute the following ratios for both companies for the current year:
	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
2.	Decide which company's stock better fits your investment strategy.

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