Question

The following information (in $000) has been obtained from Sheridan Limited’s financial statements for the fiscal years ended December 31.

		2020			2019			2018
Total assets		$742			$598			$512
Current liabilities		96			90			92
Total liabilities		247			162			161
Total shareholders’ equity		501			433			403
Income before taxes		88			60			52
Interest expense		10			6			5
Net cash provided by operating activities		124			103			107
Net income		73			49			43
Capital expenditures for the year		30			20			15
Number of common shares outstanding		81			81			79
Taken from stock market at Dec. 31 Market price per share (not in $000)		$16.60			$12.39			$12.20

There were no preferred shares issued by Sheridan nor were there any dividends paid in any of the three years.

what is price earnings ratio for fiscal years 2019 and 2020?

x times? Round answer to 2 decimal places

Answer 1

For 2019

Number of common share outstanding, beginning = 79,000

Number of common share outstanding, ending = 81,000

Net income = $49,000

Average number of common shares outstanding = (Number of common share outstanding, beginning + Number of common share outstanding, ending)/2

= (79,000 + 81,000)/2

= 80,000

Earning per share = Net income/Average number of common shares outstanding

= 49,000/80,000

= $0.61

price earnings ratio = Market price per share/Earning per share

= 12.39/0.61

= 20.31 times

For 2020

Number of common share outstanding, beginning = 81,000

Number of common share outstanding, ending = 81,000

Net income = $73,000

Average number of common shares outstanding = (Number of common share outstanding, beginning + Number of common share outstanding, ending)/2

= (81,000 + 81,000)/2

= 81,000

Earning per share = Net income/Average number of common shares outstanding

= 73,000/81,000

= $0.90

price earnings ratio = Market price per share/Earning per share

= 16.60/0.90

= 18.44 times

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