Homework Answers
| a | Acid Test ratio | (Cash+short term investment+Account receivable) | / | Total current liabilities | ||||||||
| Digitized | (25000+42000+38000) | / | 101000 | |||||||||
| 105000 | / | 101000 | = | 1.04 | ||||||||
| Very network | (20000+18000+47000) | / | 98000 | |||||||||
| 85000 | / | 98000 | = | 0.87 | ||||||||
| b | Inventory Turnover | Cost of goods sold | / | Average merchandise inventory | = | Inventory turnover | ||||||
| Digitized | 206000 | / | 65000 | = | 3.17 | (Note: Beginning merchandise inventory was not given in question. Hence, ending balance assumed to be average inventory. | ||||||
| Very network | 259000 | / | 100000 | = | 2.59 | |||||||
| c | Computation of days sales inventory | |||||||||||
| 365 | / | Account receivable turnover ratio | = | Days sales inventory | ||||||||
| Digitized | 365 | / | 3.17 | = | 115.17 | |||||||
| Very network | 365 | / | 2.59 | = | 140.93 | |||||||
| d | Debt ratio | Total liabilities | / | Total asset | ||||||||
| Digitized | 101000 | / | 261000 | = | 0.39 | |||||||
| Very network | 133000 | / | 325000 | = | 0.41 | |||||||
| e | Earning per share of common stock | Net income - preferred dividends | / | Weighted average no. of common share outstanding | ||||||||
| Digitized | 48000 | / | 10000 | = | 4.8 | |||||||
| Very network | 76000 | / | 16000 | = | 4.75 | |||||||
| f | Price-Earning ratio | Market price per share | / | Earning per share | ||||||||
| Digitized | 72 | / | 4.8 | 15.00 | ||||||||
| Very network | 104 | / | 4.75 | 21.89 | ||||||||
| g | Dividend payout | Annual dividend per share | / | Earning per share | ||||||||
| Digitized | 4.8 | / | 4.8 | 1 | (In absense of data of annual dividend per share, total dividend per share assumed to be same as EPS) | |||||||
| Very network | 4.75 | / | 4.75 | 1 | ||||||||
| 2 | Digitized's stock better fits to our investment strategy as it has strong financials. | |||||||||||
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