Digital Plus and Speed Network are competitors in the area of selling phone/PDA equipment. Below is financial information for both companies.
Selected Income Statement information:
Cost of Goods Sold
Hint GP % for Digital Plus is 47.94%
Selected Balance Sheet information:
Short term investments
Total current assets
Total current liabilities
$1 par (10,000 shares)
$1 par (14,000 shares)
Beginning retained earnings
Current retained earnings
Ending Retained Earnings
Market Price of stock
COMPLETE ALL THE ANSWERS AS NOTED BELOW. ON YOUR ANSWER SHEET, REPEAT THE QUESTIONS. Each question is 10 points each.
YOU MUST STATE THE FOLLOWING ON YOUR ANSWER SHEET: “On my honor, I have neither received nor given any unauthorized assistance on this examination.”
1. Fill in the missing figures: label your answers as noted above (a through q).
Compute the following for both Digital Plus and Speed Network and answer any additional questions regarding the results. IF YOU DON’T ANSWER THE QUESTION IN FULL, YOU GET ZERO CREDIT. SHOW ALL WORK.
2. Calculate the current ratio for both companies:
a.Which is more favorable and why?
b. Which one is less favorable and why?
3. Calculate the quick ratio for both companies:
4. Calculate the debt ratio for both companies:
a. Which one is favorable and why?
b. Which one is unfavorable and why?
5. Calculate the Gross Profit amount and percentage for both companies
a. Which has the best Gross Profit % and why?
6. Calculate the Earnings per share of common stock for each company.
7. Calculate the Price/Earnings ratio for both companies:
8. What can management do to help the current ratio for Speed Network?
9. How can Digital Plus increase its Earnings per Share?
10. What is the difference between the current ratio and the quick ratio. Why use either (in what situations would you use on and in what situation would you use the other)?
Extra Credit 5 points – For Digital Plus or Speed Network, what affect will a decrease in the price of inventory do to the Current Ratio? What will it do to the Gross Profit Percentage? Give me an example and explain.