Question

In: Finance

You are given the following information for Smashville, Inc. Cost of goods sold: $ 119,000 Investment...

You are given the following information for Smashville, Inc.

Cost of goods sold: $ 119,000
Investment income: $ 2,300
Net sales: $ 232,000
Operating expense: $ 40,000
Interest expense: $ 7,400
Dividends: $ 11,000
Tax rate: 40 %
Current liabilities: $ 18,000
Cash: $ 21,000
Long-term debt: $ 25,000
Other assets: $ 39,000
Fixed assets: $ 126,000
Other liabilities: $ 5,000
Investments: $ 43,000
Operating assets: $ 45,000

  

During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $15,000. At the end of the year, Smashville stock sold for $52 per share. Calculate the price-book ratio, price-earnings ratio, and the price-cash flow ratio.

Solutions

Expert Solution

Income Statement

Sales     232,000.00
Add: Investment cost         2,300.00
Gross income     234,300.00
Less: Cost of goods sold     119,000.00
Less: operating expenses       40,000.00
Depreciation       15,000.00
EBIT       60,300.00
Less: Interest         7,400.00
Income Before Income Tax (EBT)       52,900.00
Less: Income Tax@40%       21,160.00
Net Profit After Tax       31,740.00
Less: Dividend       11,000.00
Added to retained earnings       20,740.00

Book Value per Share = (Total Assets – Total Liabilities) / Number of shares outstanding

= (21000+39000+126000+43000+45000-(18000+25000+5000))/17000

= (226000/17000

= 13.29

price-book (P/B) Ratio = market price per share / book value per share

= 52/13.29

= 3.91

Earnings per share (EPS) = Net profit after tax/Number of shares outstanding

= 31740/17000

= 1.87

price-earnings ratio = market price per share /EPS

= 52/1.87

= 27.81 (if you do not rounded off EPS, answer comes to 27.85)

OPerating cash flow = Net income+non cash expenses-increase in working capital-other income

= 31740-2300+1500

= 30940

OPerating cash flow per share = 30940/17000

= 1.82

price-cash flow ratio =market price per share /OPerating cash flow per share

= 52/1.82

= 28.57


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