Question
In: Accounting
a. Determine the company’s earnings per share on common stock.(b)b. Determine the company’s price-earnings ratio. Round to one decimal place.
A company reports the following:
Net income $185,000
Preferred dividends $25,000
Shares of common stock outstanding 100,000
Market price per share of common stock $20
a. Determine the company’s earnings per share on common stock.
b. Determine the company’s price-earnings ratio. Round to one decimal place.
Solutions
Expert Solution
Financial Ratios : The criteria used to assess a company's liquidity, capabilities, profitability, and overall performance are called financial ratios.
Earnings per share : Earnings per share refers to the portion of profit that each share of stock generates for a certain shareholder.
Earnings per share = Net income - Preferred Dividends / Weighted Average no.of.common shares outstanding
=$185,000 - $25,000 / 100,000
=$60,000 / 100,000
=$1.60
Price / earnings ratio : The price-to-earnings ratio is used to assess a company's profitability. P/E is the abbreviation for this ratio.
Price / earnings ratio = Market price per share of common stock / Earnings per share
= $20 / $1.60
= $12.5 times
(a)Therefore, the calculated earnings per share are $1.60
(b)Therefore, the calculated price earnings ratio is 12.5 times
balaji rao answered 2 years agoRelated Solutions
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