Question

Some recent financial statements for Smolira Golf Corp. follow.

  

SMOLIRA GOLF CORP. 2014 and 2015 Balance Sheets
Assets									Liabilities and Owners’ Equity
	2014				2015					2014				2015
Current assets									Current liabilities
Cash	$	24,076			$	24,400			Accounts payable	$	23,484			$	27,400
Accounts receivable		12,748				15,500			Notes payable		13,000				11,100
Inventory		25,742				27,400			Other		11,871				17,500
Total	$	62,566			$	67,300			Total	$	48,355			$	56,000
									Long-term debt	$	72,000			$	84,000
									Owners’ equity
									Common stock and paid-in surplus	$	45,000			$	45,000
									Accumulated retained earnings		224,906				245,000
Fixed assets
Net plant and equipment	$	327,695			$	362,700			Total	$	269,906			$	290,000
Total assets	$	390,261			$	430,000			Total liabilities and owners’ equity	$	390,261			$	430,000

SMOLIRA GOLF CORP. 2015 Income Statement
Sales					$	378,618
Cost of goods sold						254,000
Depreciation						56,150
Earnings before interest and taxes					$	68,468
Interest paid						14,600
Taxable income					$	53,868
Taxes (20%)						10,774
Net income					$	43,094
Dividends	$	23,000
Retained earnings		20,094

Smolira Golf Corp. has 20,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2015 was $27.

  

What is the price-earnings ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

  

Price-earnings ratio

12.56 times

  

What are the dividends per share? (Round your answer to 2 decimal places, e.g., 32.16.)

  

Dividends

1.15 per share

  

What is the market-to-book ratio at the end of 2015? (Round your answer to 2 decimal places, e.g., 32.16.)

  

Market-to-book ratio

times

   

If the company’s growth rate is 10 percent, what is the PEG ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

  

PEG ratio

times

Answer 1

Solution:-

a) Price- earnings ratio = 12.53 times

Calculation:-

Earnings per share= Net income / Shares

                                = $43,094 / 20,000

                                 =$2.1547 per share

P/E ratio= Share market price / Earnings per share

               = $27 / $2.1547

                = 12.53 times

b)Dividend per share = 1.15 per share

Calculation:-

Dividends per share= Dividends / No of Shares

                                   = $23,000 / 20,000

                                   = $1.15 per share

c) Market to book ratio= 1.86 times

Calculation:-

Book value per share= Total equity / No of Shares

Book value per share= $290,000 / 20,000

                                 =$14.50

Market-to-book ratio= Share market price / Book value per share

                                  =$27/$14.50

                                  =1.86 times

d) PEG ratio= 1.25 times

Calculations:-

PEG ratio= P/E ratio / Growth rate

                 = 12.53 / 10

                 = 1.253 times i.e. 1.25 times.

Please feel free to ask if you have any query in the comment section.