Analyzing an Investment by Comparing Selected Ratios
You have the opportunity to invest $10,000 in one of two companies from a single industry. The only information you have is shown here. The word high refers to the top third of the industry; average is the middle third; low is the bottom third.
Ratio | Company A | Company B |
Current | Low | High |
Inventory turnover | High | Low |
Debt-to-assets | Low | Average |
Times interest earned | High | Average |
Price/earnings | High | Average |
Required:
Which company would you select? Write a brief explanation for your recommendation.
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