Assume that you are considering purchasing shares as a
Question and Solution
Assume that you are considering purchasing shares as an investment. You have narrowed the choice to two Internet firms
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Assume that you are considering purchasing shares as an investment. You have narrowed the choice to two Internet firms, Video.com Inc. and On-Line Express Ltd., and have assembled the following data. Selected income statement data for current year: Selected balance sheet and market price data at end of current year: Selected balance sheet 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. Requirement Compute the following ratios for both companies for the current year and decide which company's shares better fit your investment strategy: a. Quick (acid-test) ratio b. Inventory turnover c. Days' sales in receivables d. Debt ratio e. Times-interest-earned ratio f. Return on equity g. Earnings per share h. Price/earnings ratio
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