Managerial Accounting (5th Edition)
5th Edition
ISBN: 9780134128528
Author: Karen W. Braun, Wendy M. Tietz
Publisher: PEARSON
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Textbook Question
Chapter 14, Problem 14.43BP
Make an investment decision (Learning Objective 4)
Assume that you are purchasing an investment and have decided to invest in a company in the smartphone business. You have narrowed the choice to Digital Plus Electronics or Speed Network Electronics and have assembled the following data.
Selected income statement data for the current year follow:
| Digital Plus | Speed Network | |
| Net sales (all on credit) | $401,500 | $554,800 |
| Cost of goods sold | $209,000 | $231,000 |
| Interest expense | – | $ 16,500 |
| Net income | $ 49,000 | $ 63,000 |
Selected balance sheet data at the beginning of the current year follow:
| Digital Plus | Speed Network | |
| Current receivables, net | $ 34,300 | $ 53,480 |
| Inventories | $ 86,000 | $ 77,000 |
| Total assets | $258,000 | $276,000 |
| Common stock: | ||
| $1 par (10,000 shares) | $ 10,000 | |
| $1 par (14,000 shares) | $ 14,000 |
Selected balance sheet and market-price data at the end of the current year follow:
| Digital Plus | Speed Network | |
| Current assets: | ||
| Cash | $ 30,500 | $ 22,000 |
| Short-term investments | 52,220 | 21,200 |
| Current receivables, net | 35,000 | 40,000 |
| Inventories | 66,000 | 98,000 |
| Prepaid expenses | 2,280 | 6,800 |
| Total current assets | $186,000 | $188,000 |
| Total assets | $436,000 | $434,375 |
| Total current liabilities | $109,000 | $104,000 |
| Total liabilities | $109,000 | $139,000 |
| Common stock: | ||
| $1 par (10,000 shares) | $ 10,000 | |
| $1 par (14,000 shares) | $ 14,000 | |
| Total stockholders’ equity | $327,000 | $295,375 |
| Market price per share of common stock | $ 73,50 | $81,90 |
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 stock better fits your investment strategy, Assume all sales are on credit.
- a. Acid-test ratio
- b. Inventory turnover
- c. Days’ sales in average receivables
- d. Debt ratio
- e. Gross profit percentage
- f. Earnings per share of common stock
- g. Price/earnings ratio
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Chapter 14 Solutions
Managerial Accounting (5th Edition)
Ch. 14 - (Learning Objective 1) Which of the following...Ch. 14 - Prob. 2QCCh. 14 - Prob. 3QCCh. 14 - Prob. 4QCCh. 14 - (Learning Objective 3) Which of the following is...Ch. 14 - (Learning Objective 4) Working capital is defined...Ch. 14 - Prob. 7QCCh. 14 - Prob. 8QCCh. 14 - Prob. 9QCCh. 14 - Prob. 10QC
Ch. 14 - Prob. 14.1SECh. 14 - Find trend percentages (Learning Objective 1)...Ch. 14 - Prob. 14.3SECh. 14 - Prepare common-size income statements (Learning...Ch. 14 - Analyze common-size income statements (Learning...Ch. 14 - Cartwrights Data Set used for S14-6 through...Ch. 14 - Cartwrights Data Set used for S14-6 through...Ch. 14 - Cartwrights Data Set used for S14-6 through...Ch. 14 - Prob. 14.9SECh. 14 - Prob. 14.10SECh. 14 - Prob. 14.11SECh. 14 - Prob. 14.12AECh. 14 - Prob. 14.13AECh. 14 - Prob. 14.14AECh. 14 - Prob. 14.15AECh. 14 - Prob. 14.16AECh. 14 - Calculate ratios (Learning Objective 4) Kelleher...Ch. 14 - Prob. 14.18AECh. 14 - Prob. 14.19AECh. 14 - Prob. 14.20AECh. 14 - Prob. 14.21AECh. 14 - Classify company sustainability measurements into...Ch. 14 - Prob. 14.23BECh. 14 - Prob. 14.24BECh. 14 - Prob. 14.25BECh. 14 - Prob. 14.26BECh. 14 - Prob. 14.27BECh. 14 - Calculate ratios (Learning Objective 4) Ponderosa...Ch. 14 - Prob. 14.29BECh. 14 - Prob. 14.30BECh. 14 - Prob. 14.31BECh. 14 - Calculate ratios (Learning Objective 4) Thornton...Ch. 14 - Prob. 14.33BECh. 14 - Prob. 14.34APCh. 14 - Comprehensive analysis (Learning Objectives 2, 3, ...Ch. 14 - Prob. 14.36APCh. 14 - Ratio analysis over two years (Learning Objective...Ch. 14 - Prob. 14.38APCh. 14 - Prob. 14.39BPCh. 14 - Prob. 14.40BPCh. 14 - Prob. 14.41BPCh. 14 - Ratio analysis over two years (Learning Objective...Ch. 14 - Make an investment decision (Learning Objective 4)...Ch. 14 - Prob. 14.44SCCh. 14 - Discussion Questions 1. Describe horizontal...Ch. 14 - Prob. 14.47ACTCh. 14 - Using financial statement ratios to analyze...
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