Requirement: 1) Evaluate the common stock of evolution distributing company as an investment. Specifically use the...

Requirement:

1) Evaluate the common stock of evolution distributing company as an investment. Specifically use the three common stock ratios to determine whether the common stock increased or decreased in attractiveness during the past year. (The number of common stock shares was the same in 2015 & 2016). Round calculations and your final answer to three decimal places.

2016. 2015

Net income $114,000. $70,500

Dividends to common. $15,000. $15,000

Total stockholders equity $300,000. $515,000

at year end (includes 43,500 shares of common stock)

Preferred stock, 5% $105,000. $105,000

Market price per share $23.50. $17.25

Of common stock at year end

Expert Solution

		2016	2015
	Net Income	$1,14,000	$ 70,500
	Dividends to common stockholders	$ 15,000	$ 15,000
	Total stock holders' equity	$3,00,000	$ 5,15,000
	Preferred stock 5%	$1,05,000	$ 1,05,000
	Market price per share	$ 23.50	$ 17.25
	COMMON STOCK RATIOS:
1)	EPS:
	Net Income	$1,14,000	$ 70,500
	Preferred dividends	$ 5,250	$ 5,250
	Income for common shares	$1,08,750	$ 65,250
	Number of common shares	43500	43500
	EPS	$ 2.500	$ 1.500
2)	RETURN ON EQUITY (ROE):
	Income for common shares	$1,08,750	$ 65,250
	Total equity	$3,00,000	$ 5,15,000
	Preferred capital	$1,05,000	$ 1,05,000
	Common equity	$1,95,000	$ 4,10,000
	ROE (Income for common shares/Common equity)	55.769%	15.915%
3)	PRICE/EARNINGS:
	Market price per share	$ 23.50	$ 17.25
	EPS	$ 2.50	$ 1.50
	P/E	9.400	11.500
	EVALUATION:
	The EPS and ROE have increased during the year 2016 indicating better performance.
	Further, as the P/E ratio is lower, the share is a good buy.

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