12) ? (Most recent 12? months) Dell 2007 Apple 2007 Net Income? ($ millions) ?$3,572 ?$3,130...

12)

? (Most recent 12? months)	Dell 2007	Apple 2007
Net Income? ($ millions)	?$3,572	?$3,130
Shares outstanding? (millions)	?2,300	869.16
Earnings per share? ($)	?$1.55	?$3.60
Price per share? (8/1/07)	?$27.76	?$133.64
? Price-to-earnings ratio? (PE ratio)	17.91	37.11
Book value of common equity? ($ millions)	?$4,129	?$9,984
Book value per share? ($)	?$1.80	?$11.49
? Market-to-book ratio	15.42	11.63

?(Analyzing market values using financial? ratios) On August? 1, 2007 the Dell Computer? Corporation's stock closed trading at $27.76 per share while Apple? Corporation's shares closed at $133.64. Does this mean that because? Apple's stock price is roughly four times that of? Dell's, Apple is the more valuable? company? Interpret the prices for these two firms using the information found? here:

It appears that Apple enjoys a ______ (higher/lower) price per share when compared to its 2007 earnings but a _______ (lower/higher) price when compared to the book value of the? firm's equity. The ______ (lower/higher) market-to-book ratio for Apple reflects that fact that Apple has used a great deal ______ (more/less) equity? (and _____ (more/less) debt) to finance its operations. ?(Select from the? drop-down menus.)

Expert Solution

No, it does not mean that Apple is more valuable than dell. It just means the stock of one company is trading at a certain price. The stock price is dependent on several factors,

Number of Stocks
Book Value of the entity
Earnings
Dividend Policies
Market Expectations
Risk etc

Now let's say Apple went through a 1:10 Stock Split, The stock price of Apple would be $13.364 per share. But the value of Apple Corp is still the same. Or vice versa. The company are valued using different methods, viz.

Book Values, Expected Free Cash Flow, Market Valuation etc. Sometimes there are other valuations to consider as well. So just because a corporation's stock is at a higher price does not mean it is more valuable.

I don't know whether to use the latest data or not, the question is unclear, but here goes.

Higher Price Per Share

Higher Price

Lower Market to Book ratio, (11.63 compared to 15.42) Less Equity

and More Debt to Finance it's Operation

Good luck

jeff jeffy answered 2 years ago

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