Question

In: Accounting

Options 365/accounts receivable turnover ratio Annual dividend per share/ earning per share (cash + cash equivalents)/...

Options

365/accounts receivable turnover ratio

Annual dividend per share/ earning per share

(cash + cash equivalents)/ total current liabilities

(cash +short term investments + account receivable , net) / total current liabilities

cost of good sold/ avg merchandise inv

market price per share of common stock/ earning per share

(net income - preferred dividends)/ weighted avg number of common share outstanding

total current assets/ total current liabilities

total liabilities/ total asset

Selected income statement data for the current year:

	Better Digital	Every Network
Net Sales Revenue (all on credit)	$416,830	$493,115
Cost of Goods Sold	210,000	258,000
Interest Expense	0	19,000
Net Income	52,000	72,000

Selected balance sheet and market price data at the end of the current year:

	Better Digital	Every Network
Current Assets:
Cash	$27,000	$22,000
Short-term Investments	40,000	18,000
Accounts Receivables, Net	37,000	46,000
Merchandise Inventory	66,000	99,000
Prepaid Expenses	21,000	15,000
Total Current Assets	$191,000	$200,000
Total Assets	$264,000	$324,000
Total Current Liabilities	102,000	97,000
Total Liabilities	102,000	133,000
Common Stock:
$1 par (12,000 shares)	12,000
$1 par (17,000 shares)		17,000
Total Stockholders' Equity	162,000	191,000
Market Price per Share of Common Stock	82.27	106.00
Dividends Paid per Common Share	1.10	0.70

Selected balance sheet data at the beginning of the current year:

	Better Digital	Every Network
Balance sheet:
Accounts Receivables, net	$39,000	$51,000
Merchandise Inventory	83,000	85,000
Total Assets	260,000	271,000
Common Stock:
$1 par (12,000 shares)	12,000
$1 par (17,000 shares)		17,000

Requirement 1a. Compute the acid-test ratio for both companies for the current year.

Begin by selecting the formula to compute the acid-test ratio.

Acid-test ratio

Now, compute the acid-test ratio for both companies. (Round your answers to two decimal places, X.XX.)

	Better Digital	Every Network
Acid-test ratio

Requirement 1b. Compute the inventory turnover for both companies for the current year.

Begin by selecting the formula to compute the inventory turnover.

Inventory turnover

Now, compute the inventory turnover for both companies. (Round your answers to two decimal places, X.XX.)

	Better Digital	Every Network
Inventory turnover

Requirement 1c. Compute the days' sales in receivables for both companies for the current year.

Begin by selecting the formula to compute the days' sales in receivable.

Days' sales in receivables

Now, compute the days' sales in receivables for both companies. (Round interim calculations to two decimal places and your final answers to the nearest whole day.)

	Better Digital	Every Network
Days' sales in receivables

Requirement 1d. Compute the debt ratio for both companies for the current year.

Begin by selecting the formula to compute the debt ratio.

Debt ratio

Now, compute the debt ratio for both companies. (Round your answers to the one tenth of a percent, X.X%.)

	Better Digital		Every Network
Debt ratio		%		%

Requirement 1e. Compute the earnings per share of common stock for both companies for the current year.

Begin by selecting the formula to compute the earnings per share of common stock.

Earnings per share
of common stock	=

Now, compute the earnings per share of common stock for both companies. (Round your answers to the nearest cent.)

	Better Digital	Every Network
Earnings per share of common stock

Requirement 1f. Compute the price/earnings ratio for both companies for the current year.

Begin by selecting the formula to compute the price/earnings ratio.

Price/earnings ratio

Now, compute the price/earnings ratio for both companies. (Round interim and final answers to two decimal places, X.XX.)

	Better Digital	Every Network
Price/earnings ratio

Requirement 1g. Compute the dividend payout for both companies for the current year.

Begin by selecting the formula to compute the dividend payout.

Dividend payout

Now, compute the dividend payout for both companies. (Round interim answers to two decimal places, X.XX, and your final answers to the nearest whole percent, X%.)

	Better Digital		Every Network
Dividend payout		%		%

Requirement 2. Decide which company's stock better fits your investments strategy.

▼

Better Digital's

Every Network's

common stock seems to fit the investment strategy better. Its price/earnings ratio is

▼

higher than that of Better Digital,

higher than that of Every Network,

lower than that of Better Digital,

lower than that of Every Network,

and

▼

Better Digital appears in better shape financially than Every Network

Every Network appears in better shape financially than Better Digital

. On the majority of the ratios,

▼

Better Digital looks better than Every Network.

Every Network looks better than Better Digital.

Solutions

Expert Solution

REQUIREMENT 1a:

Acid Test Ratio = (cash +short term investments + account receivable , net) / total current liabilities

Better Digital = (27,000 + 40,000 + 37,000)/102,000

= 1.02 times

Every Network = (22,000 + 18,000 + 46,000)/97,000

=0.89 times

REQUIREMENT 1b:

		Better Digital	Every Network
Inventory turnover		2.82 times	2.80 times

Inventory turnover = cost of good sold/ avg merchandise inventory

Better Digital = 210,000/(66,000+83,000)/2

=210,000/74,500

=2.82 times

Every netrwork=258,000/(99,000+85,000)/2

= 258,000/92,000

= 2.80 times

REQUIREMENT 1c:

	Better Digital	Every Network
Days' sales in receivables	33 days	36 days

Days' sales in receivables= 365/accounts receivable turnover ratio

Better Digital = 365/10.96

= 33 days

Every Network= 365/10.17

= 36 days

accounts receivable turnover ratio = sales/avarege account recievables

Better Digital = 416,830/(37,000+39,000)/2

= 416,830/38,000 = 10.96

Every Network= 493,115/(46,000+51,000)/2

= 493,115/48,500

=10.17

REQUIREMENT 1d

	Better Digital	Every Network
Debt ratio	38.6	%41.0		%

Debt ratio = total liabilities/ total asset

Better Digital = 102,000/264,000 = 38.6%

Every network = 133,000/324,000 = 41.0%

Requirement 1e.

	Better Digital	Every Network
Earnings per share of common stock	4 per share	4 per share

Earning per share = (net income - preferred dividends)/ weighted avg number of common share outstanding

Better Digital = (52,000-0)/12,000 shares

= 4 per share

Every Network = (72,000-0)/17,000 shares

= 4 per share

	Better Digital	Every Network
Price Earning Ratio	19.00	25.06

Price earning Ratio = market price per share of common stock/ earning per share

Better Digital = 82.27/4.33

= 19.00

Every Network = 106/4.23 per share

= 25.06

	Better Digital	Every Network
Dividend Payout	25%	17%

Dividend Payout= Annual dividend per share/ earning per share

better Digital = 1.10/4.33

= 25%

Every Network= 0.70/4.23

=17%

Requirement 2

Better Digital's common stock seems fit the invetmnet strtergy better, its price earning erning ratio is lower than Everey network and Better digital appears in better shape finnacilay than ecevry network on mojority of ratio, Bettr digital looks better than Every network

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

The accounts receivable turnover ratio of a company is 2; if its annual credit sales is...

The accounts receivable turnover ratio of a company is 2; if its annual credit sales is $ 951810, what is the average value of outstanding credit (or value of accounts receivable)? If the company operates 350 a year, what is the average number of days it takes to get a credit sale paid? Average outstanding credit = $ . (Round to TWO places of decimal) Average number of days to get payment on a credit sale = (Round to the nearest integer)

Assets 2019 2018 Amount Cash & equivalents $20,000.00 Cash & equivalents $10,000.00 Accounts Receivable $15,000.00 Accounts...

Assets 2019 2018 Amount Cash & equivalents $20,000.00 Cash & equivalents $10,000.00 Accounts Receivable $15,000.00 Accounts Receivable $25,000.00 Inventory $10,000.00 Inventory $15,000.00 Total current assets $45,000.00 Total current assets $50,000.00 Net Plant and equipment $50,000.00 Net Plant and equipment $60,000.00 Total assets $95,000.00 Total assets $110,000.00 Liabilities and equity Liabilities and equity Accounts payable $5,000.00 Accounts payable $7,000.00 Accruals $2,000.00 Accruals $3,000.00 Notes payable $10,000.00 Notes payable $5,000.00 Total current liabilities $17,000.00 Total current liabilities $15,000.00 Long term debts $25,000.00...

High Inc. has an accounts receivable turnover ratio of 7.3. Low Company has an accounts receivable...

High Inc. has an accounts receivable turnover ratio of 7.3. Low Company has an accounts receivable turnover ratio of 5. Assuming that High and Low have the same sales level, which of the following statements is correct? A. Low Company has (on average) a lower accounts receivable balance than does High. B. Low's average collection period is less than High's. C. High's average collection period is less than Low's. D. High has a higher accounts receivable balance on average than...

The average collection period ratio is defined as shown below: Accounts Receivable / (sales/ 365) It...

The average collection period ratio is defined as shown below: Accounts Receivable / (sales/ 365) It shows how many days, on average, it takes to collect your receivables. If your average collection period was 30 days last year and it is now 45 days, what does that imply? What is happening to your cash position? What are some things you might do to reduce your average collection period?

. Company Annual Cash Dividend per Share Market Value per Share 1 $ 12.00 $ 193.55...

. Company Annual Cash Dividend per Share Market Value per Share 1 $ 12.00 $ 193.55 2 9.00 107.14 3 7.90 73.15 4 1.80 129.70 Compute the dividend yield for each of these four separate companies. Dividend Yield Company Choose Numerator: / Choose Denominator: = Dividend Yield Annual cash dividend per share / Market value per share = Dividend yield 1 $12.00 / $193.55 = 6.2% 2 9.00 / 107.14 = 8.4% 3 7.90 / 73.15 = 10.8% 4...

COMPUTE AND ANALYZE THE LIQUIDITY RATIOS: CURRENT RATIO, ACCOUNTS RECEIVABLE TURNOVER, INVENTORY TURNOVER. EXPLAIN HOW THEY...

COMPUTE AND ANALYZE THE LIQUIDITY RATIOS: CURRENT RATIO, ACCOUNTS RECEIVABLE TURNOVER, INVENTORY TURNOVER. EXPLAIN HOW THEY AFFECT INVERSTORS' OR CREDITORS' DECISIONS REGARDING THE COMPANY.

How Do I Calculate Accounts Receivable Turnover Ratio? Give An Example.

Question 1 Provide responses to the following questions: Explain why the accounts receivable turnover ratio is...

Question 1 Provide responses to the following questions: Explain why the accounts receivable turnover ratio is helpful in evaluating the liquidity of a company? Why is the amount reported on the balance sheet for receivables usually not the same as the sum of the amounts that customers have promised to pay? (hint: Explain bad debt expense / ADFA)

Accounts Receivable Turnover for Morningstar The 2015 annual report of Morningstar (the maker of Circus-o's and...

Accounts Receivable Turnover for Morningstar The 2015 annual report of Morningstar (the maker of Circus-o's and Crunch'ems) reported the following amounts (in millions of dollars): Revenues, for the year ended May 31, 2015 $15,690 Accounts receivable, net, May 31, 2015 953 Accounts receivable, net, May 31, 2014 1,082 Required: 1. Compute Morningstar’s accounts receivable turnover ratio for the year ended May 31, 2015. Assume that all sales are on credit. Round your answer to two decimal places. times 2. What...

You are given the following information. Calculate Total Liabilities. Cash and equivalents is $85 accounts receivable...

You are given the following information. Calculate Total Liabilities. Cash and equivalents is $85 accounts receivable are $87 inventory is $66 net fixed assets is $199 accounts payable is $92 accruals are $99 notes payable are $81 long term debt is $82

Subjects