Question

82% Assume that you are considering purchasing stock as an investment. You have narrowed the choice to either Power Corporation stock or E-shop Company stock and have assembled the following data for the two companies. EEB (Click the icon to view the income statement data.) B(Click the icon to view data at end of current year) 圈(Click the icon to view data at beginning of current year) 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 Read the requirements Requirement 1. Compute the ratios for both companies for the current year and decide which company's stock better fits your investment strategy Begin by computing the ratios, starting with the quick (acid-test) ratio. (Abbreviations used Avg -average, Cash- cash and cash equivalents, Mkt market, o/s outstanding. SE stockholders' equity, and ST-short-term.) a. Quick (acid-test) ratio s Previous )r Power E-shop b. Inventory turnover Select the formula and then enter the amounts to calculate the inventory turnover for each company. (Round the ratios to two decimal places, X.XX) Inventory turnover Power E-shop c. Days' sales in average recelivables Select the formula and then enter the amounts to calculate days' sales in average receivables for each company. (Use a 365-day year. Round intermediary calculations to the nearest whole number. X. Round your final answers to one decimal place, X.X) " Days' sales in average receivables 令82% Power )r E-shop )1 b. Inventory turnover Select the formula and then enter the amounts to calculate the inventory turnover for each company. (Round the ratios to two decimal places, X.xx) Inventory turnover Power E-shop c. Days sales in average receivables Select the formula and then enter the amounts to calculate days' sales in average receivables for each company. (Use a 365-day year. Round intermediary calculations to the nearest whole number, X. Round your final answers to one decimal place, XX.) Days' sales in average receivables Power E-shop d. Debt ratio Select the formula and then enter the amounts to calculate the debt ratio for each company. (Enter the debt ratio in decimal form to two decimal places, XXX) Debt ratio Power E-shop[ e. Times-interest-earned ratio Select the formula and then enter the amounts to calculate the times-interest-earned ratio for E-shop. (Round the ratio to one decimal place, X.x.) Times-interest-eaned ratio E-shop f. Return on common stockholders' equity 令82% ■ dvc instructure.com f. Return on common stockholders' equity Select the formula and then enter the amounts to calculate the return on common stockholders' equity (ROE) for each company. (Complete all answer boxes. If an account has a zero balance, enter a "0". Enter the ROE as a percentage rounded to the nearest one-tenth percent. XX56) ROE )7 Power )1 E-shop )1 g Earnings per share of common stock Select the formula and then enter the amounts to calculate eamings per share (EPS) for each company. (Complete all answer boxes. If an account has a zero balance, enter a "o.Round EPS to two decimal places, XXXx.) EPS )r Power E-shop h. Price-earnings ratio Select the formula and then enter the amounts to calculate the price-earnings (P/E) ratio for each company. (Enter amounts in the formula to two decimal places, X.xx, but then round the PIE ratios to one decimal place, X.X, as needed.) P/E ratio Power E-shop Which company's stock beter fits your investment stralegy? seems to fit the investment strategy better. Its price-earmings ratio is The common stock of and Data Table Web Power 598,000 $ 517,000 Cost of goods sold 385,000 456,000 Income from operations 76,000 94,000 10,000 Net income 70,000 37,000 Print Done This Test: 100 4 of 4 (0 complete)D Data Table d have assemb Selected balance sheet and market price data at end of current year: Web ctors and that y Power Current assets: the 42,000 27,000 $ Cash s " outstanding 15,000 10,000 Short-term investments 185,000 166,000 Current receivables, net. Print Done ㄧㄨ Data Table 185,000 166,000 217,000 187,000 Inventories 16,000 11,000 Prepaid expenses 450,000 426,000 Total current assets 929,000 977,000 Total assets. 362,000 336,000 Total current liabilities . . . . ···· Data Table view view da 362,000 336,000 t in co of ratio ctors and that you Total liabilities 674,000 687,000 Preferred stock, 6%, $1 50 par 30,000 te the Common stock, $1 par (115,000 shares) 115,000 ratios S = outstanding, g 5 par (10,000 shares) d ST 50,000 Total stockholders' equity 303,000 242,000 enter Print Done Data Table o view th view da ctors arl that your 674,000 687,000 est in co s of ratio Total liabilities 30,000 Preferred stock、6%, $150 par s. 115,000 Common stock, $1 par (115,000 shares) pute the 50,000 $5 par (10,000 shares) s = outstanding, SE e ratios 242,000 Total stockholders' equity.... 303,000 tio 7.32 $ 73.92 Market price per share of common stock S or enter Print Done on: 25 pts Data Table e icon to view th e icon to view da sheet Selected balance sheet data at beginning of current year is to invest in co he results of ratio ctors and that you Power Web uirements. Balance sheet: 1. Compute the 148,000 S 193,000 sWoutstanding, S puting the ratios equity, and ST 194,000 Inventories 208,000 -test) ratic 914,000 850,000 Total assets any list or enter Print Done Data Table con to view con to view da to invest in co results of ratio ctors and that your 850,000 914,000 Total assets... 311,000 Long-term debt... ments Preferred stock, 6%, $150 par 30.00p Compute tho Common stock, $1 par (115,000 shares).... 115,000 ting the ratos uity, and ST a outstanding, S $5 par (10,000 shares) 50,000 st) ratio Total stockholders' equity 264,000 217,000 y list or enter Print Done

Answer 1

Quick (acid test) ratio 185000)/ 166000)/ 27000 + 10000+ 62000 0.61 E-shop 0.66 42000 15000+ 336000 9 b) Inventory Turnover Cost of Goods Sold Inventory Turnover Average Inventory 456000 / 385000/ 12 212500 2.15 E-shop 2.02 13 190500 14 Days' sales in avera eceivables 15 c 16 17 Receivable turnover Ratio Inventory Turnover Power 3.59 101.6 E-shop 19 2.88 126.7 20 21 d) Debt Ratio Total Debt Total Assets Debt Ratio 23 74000/ 687000 Power 977000 0.69 E-shop 25 929000 0.74

27 e) Times Interest Earned Ratio 28 Times Interest Earned Ratio 29 EBIT Interest expense E-shop 76000/ 30 10000.00 7.6 31 32 Return on Common Stockholders' Equity Net Income Preferred Dividend Average Stokholders' Equity 34 ROE 24.7% 35 70000 1800 / E-shop 36 37000

Earnings Per Share 8 g) Net Income No. of Common Shares Preferred Dividend EPS 41 70000- Power 115000 0.61 0 E-shop 37000 1800)/ 3.52 10000 43