Assume that you are purchasing an investment and have decided to invest in a company in the smartphone business. You have narrowed the choice to Best Digital Electronics or Zone Network Electronics and have assembled the following data.
Selected income statement data for the current year follows:
Income StatementBest Digital Zone Network Net sales (all on credit) $467,200$569,400Cost of goods sold$203,000$242,000Interest expense$0$19,500Net income$72,800$95,400
Selected balance sheet data at the beginning of the current year follow:
Balance SheetBest Digital Zone Network Current receivables, net $45,060$53,780Inventories$73,000$73,000Total assets$262,000$274,000Common stock $1 par (13,000 shares)$13,000 $1 par (18,000 shares) $18,000
Selected balance sheet and market price data at the end of the current year follow:
Best Digital Zone Network Current assets
Cash$ 27,000
$ 18,000
Short-term investments $ 38,520
$ 15,400Current receivables, net $37,500
$ 44,500 Inventories$ 72,000 $ 103,000Prepaid expenses $ 4,980 $ 6,100Total current assets $180,000 $ 187,000Total assets $300,000 $ 325,000Total current liabilities $102,000 $95,000Total liabilities $102,000 $ 143,000Common stock $1 par (13,000 shares) $ 13,000 $1 par (18,000 shares) $ 18,000 Total stockholders’ equity $198,000 $ 182,000Market price per share of common stock $ 98.00$ 100.70
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.
Compute the following ratios for both companies for the current year and decide which company’s stock better fits your investment strategy. Assume all sales are on credit.
Selected income statement data for the current year follows:
Income StatementBest Digital Zone Network Net sales (all on credit) $467,200$569,400Cost of goods sold$203,000$242,000Interest expense$0$19,500Net income$72,800$95,400
Selected balance sheet data at the beginning of the current year follow:
Balance SheetBest Digital Zone Network Current receivables, net $45,060$53,780Inventories$73,000$73,000Total assets$262,000$274,000Common stock $1 par (13,000 shares)$13,000 $1 par (18,000 shares) $18,000
Selected balance sheet and market price data at the end of the current year follow:
Best Digital Zone Network Current assets
Cash$ 27,000
$ 18,000
Short-term investments $ 38,520
$ 15,400Current receivables, net $37,500
$ 44,500 Inventories$ 72,000 $ 103,000Prepaid expenses $ 4,980 $ 6,100Total current assets $180,000 $ 187,000Total assets $300,000 $ 325,000Total current liabilities $102,000 $95,000Total liabilities $102,000 $ 143,000Common stock $1 par (13,000 shares) $ 13,000 $1 par (18,000 shares) $ 18,000 Total stockholders’ equity $198,000 $ 182,000Market price per share of common stock $ 98.00$ 100.70
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.
Compute the following ratios for both companies for the current year and decide which company’s stock better fits your investment strategy. Assume all sales are on credit.
- Acid-test ratio
- Inventory turnover
- Days’ sales in average receivables
- Debt ratio
- Gross profit percentage
- Earnings per share of common stock
- Price/earnings ratio
Please use the library for your research. Do not use sites such as Wikipedia or Investopedia as your sources. If you use a website, make sure you review APA guidelines as to how to properly format websites as a source. Minimum word requirement: 400; include a cover page and a separate reference page listing your sources in proper APA style. Minimum 2 sources; your textbook can be one of your sources.
Do NOT submit PDF files – I will only accept a properly formatted MS Word Document. Not following instruction will automatically earn you a zero for the assignment.
