Westfield Capital Management Co."s equity investment strategy is to invest in companies with low price-to-book ratios, while considering differences in solvency and asset utilization. Westfield is considering investing in the shares of either Jerry"s Departmental Stores ( JDS) or Miller Stores (MLS). Selected financial data for both companies follow:
SELECTED FINANCIAL DATA AS OF MARCH 31, 2006
|
($ millions)
|
JDS
|
MLS
|
|
Sales
|
$21,250
|
18500
|
|
Fixed assets
|
5700
|
5500
|
|
Short-term debt
|
|
1000
|
|
Long-term debt
|
2700
|
2500
|
|
Equity
|
6000
|
7500
|
|
Outstanding shares (in millions)
|
250
|
400
|
|
Stock price ($ per share)
|
51.5
|
49.5
|
Required:
a. Compute each of the following ratios for both JDS and MLS:
(1) Price-to-book ratio
(2) Total-debt-to-equity ratio
(3) Fixed-asset-utilization (turnover)
b. Select the company that better meets Westfield"s criteria.