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Use ratios to decide between two stock investments Use ratios to decide between two stock investments Selected balance sheet

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Answer #1
Acid Test = Quick asset/ Current Liabilities
(assumed That Quick asset excludes only Inventory and not prepaid exp)
Tarrant Dallas
Cash                 26,000                      35,000
Short term Investment                   9,000                      18,000
Account receivable               185,000                   167,000
Prepaid Expense                 18,000                      12,000
Quick Asset (A)               238,000                   232,000
Current Liabilities (B)               367,000                   342,000
Acid Test = (A/B) 0.65 0.68
Inventory Turnover = COGS/ Average inventory
Tarrant Dallas
COGS (I)               458,000                   388,000
Beginning inventory (A)               205,000                   199,000
Closing inventory (B)               211,000                   187,000
Average Inventory (C=(A+B)/2)               208,000                   193,000
Inventory Turnover = (I/c) 2.20 2.01
Day's sales in receivable   = average receivable x 365 days/ credit sales
Tarrant Dallas
Credit sales (I)               601,000                   517,000
Beginning receivable (A)               141,000                   198,000
Closing receivable (B)               185,000                   167,000
Average receivable(C=(A+B)/2)               163,000                   182,500
Day's sales in receivable = (c * 365/i) 98.99 128.84
Debt Ratio = Total Liabilities/ Total Assets
Tarrant Dallas
Total Liabilities (A)               671,000                   700,000
Total Asset (B)               985,000                   933,000
Debt Ratio = (A/B) 0.68 0.75
Times interest earned ratio = net income before interest/ Interest
Tarrant Dallas
Net income before interest (A)                 94,000                      70,000
Interest (B)                          -                        10,000
Times interest earned ratio= (A/B) NA 7.00
Return on common stock equity ratio = net income after PF share dividend *100/ Ave. Common stock equity
Tarrant Dallas
Net income (A)                 63,000                      32,000
Preference share dividend (B) (0; 35000 x 9%)                          -                          3,150
Income after PF share dividend (C = A-B) 63000 28850
Stockholder's equity beginning (for dallaers : 219000-35000) (D) 263000 184000
Stockholder's equityend (for dallaers : 233000-35000) (E) 314000 198000
Average common stock holder equity (F = (D+E)/2) 288500 191000
Return on common stock equity ratio = (C *100 /F) 21.84% 15.10%
Earning per share = net income after PF share dividend/ Common share o/s
Tarrant Dallas
Net income (A)                 63,000                      32,000
Preference share dividend (B) (0; 35000 x 9%)                          -                          3,150
Income after PF share dividend (C = A-B) 63000 28850
Common share O/s (D) 115000 20000
Earning Per share (E = C/D) 0.55 1.44
Price earningratio = Price/ EPS
Tarrant Dallas
Price (A)                      5.50                        30.24
EPS (B)                      0.55                          1.44
PE Ratio = (A/B) 10.04 20.96
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