Question

The Amherst Company has a net profit of $7 million, sales of $125 million, and 1.9 million shares of common stock outstanding. The company has total assets of $53 million and total stockholders' equity of $37 million. It pays $1.73 per share in common dividends, and the stock trades at $29 per share. Given this information, determine the following:

a. Amherst's EPS is:

b. Amherst's book value per share is:

Amherst's price-to-book-value ratio is:

c. The firm's P/E ratio is:

d. The company's net profit margin is:

e. The stock's dividend payout ratio is:

The stock's dividend yield is:

f. The stock's PEG ratio, given that the company's earnings have been growing at an average annual rate of 6.6%, is:

Answer 1

Answer to Part a.

Earnings per Share (EPS) = Net Income / Shares Outstanding
Earnings per Share (EPS) = $7,000,000 / 1,900,000
Earnings per Share (EPS) = $3.68

Answer to Part b.

Book Value per Share = Total Stockholders’ Equity / Shares Outstanding
Book Value per Share = $37,000,000 / 1,900,000
Book Value per Share = $19.47

Price-to-book value ratio = Price per Share/ Book Value per share
Price-to-book value ratio = $29/ $19.47
Price-to-book value ratio = 1.49 times

Answer to Part c.

P/E Ratio = Price per Share / Earnings per Share
P/E Ratio = $29 / $3.68
P/E Ratio = 7.88 times

Answer to Part d.

Net Profit Margin = Net Profit / Sales * 100
Net Profit Margin = $7,000,000 / $125,000,000 * 100
Net Profit Margin = 5.60%

Answer to Part e.

Dividend Payout Ratio = Dividend Paid / Earnings per Share* 100
Dividend Payout Ratio = $1.73 / $3.68 * 100
Dividend Payout Ratio = 47.01%

Dividend Yield = Dividend / Current Price * 100
Dividend Yield = $1.73 / $29 * 100
Dividend Yield = 5.67%

Answer to Part f.

PEG Ratio = P/ E Ratio / Growth rate
PEG Ratio = 7.88 / 6.6
PEG Ratio = 1.19