Question

Wilson, Inc., has a current stock price of $44.00. For the past year, the company had net income of $7,000,000, total equity of $21,730,000, sales of $40,500,000, and 5.6 million shares of stock outstanding.

a.	What are earnings per share (EPS)? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What is the price-earnings ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c.	What is the price-sales ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d.	What is the book value per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
e.	What is the market-to-book ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

(a) Calculation of earning per share

EPS = Net Income / Total no. of shares = $7,000,000 / 5,600,000 shares = $1.25 per share

Earning per share is $1.25

(b) Calculation of price-earning ratio

P/E ratio = Market price of stock / EPS = $44 / $1.25 = 35.2

35.2 is the price-earning ratio.

(c) Calculation of price-sales ratio.

To calulate this we require to calculate sales per share.

Sales per share = Total Sales / Total no. of shares = $40,500,000 / 5,600,000 shares = $7.2321

Price-sales ratio = Price of share / Sales per share = $44 / $7.2321 = 6.0840 or say 6.08

6.08 is the price-sales ratio.

(d) Calculation of book value per share

Book value per share = Total book value of equity / Total No. of shares = $21,730,000 / 5,600,000 shares = $3.88

$3.88 is the book value per share.

(e) Calculation of Market-to-book ratio.

Market-to-book ratio = Share Price / Net book value per share = $44 / $3.88 = 11.34

11.34 is the market-to-book ratio.