Company A is expected by analysts to generate Earnings Per Share (EPS) in 2020 of $4.10....
Company A is expected by analysts to generate Earnings Per Share (EPS) in 2020 of $4.10. Company A's stock price is $50 per share.
Company B is expected by analysts to generate Earnings Per Share (EPS) in 2020 of $1.25. Company B's stock price is $75 per share.
*Calculate the Price-to-Earnings (P/E) ratio based on 2020 estimated earnings for Company A and Company B.
*Why in general might Company B's P/E multiple be higher than Company A's?
*If you knew something about Free Cash Flow (FCF) for each Company, why in general might that be important as you analyze the stock prices of each Company?
Homework Answers
Answer to Question 1
The formula of price earning ratio= Market value of the shares / Expected earning per share. Based on the valuation for the both the mentioned company the price to earning ratio of Company A is 12.19 and Company B is 62.5. The detailed calculation is shown in the attached excel file along with the formula involved in it.
Answer to Question 2
In general, the P/E ratio of Company B is higher than that of Company A which automatically reflects that financial performance of Company B is higher than A based on the 2020 estimation. Potential investors are much more interested in Company B to that of Company A and investors are ready to pay more for shares in the business of Company B than that of Company A due to the future growth of the business in terms of performance.
Answer to Question 3
Apart from the free cash flow in the business it is quite important to analyze the stock prices of the company. When the stock price of a particular company is higher in terms of the business compared to that of the other company, then it suggests that the future performance of the company will grow and prosper accordingly. Significant suggestion for the potential investors is to analyze the stock prices of the company along with the other factors which may affect the performance of the company by utilizing the tools and techniques.
Add Answer to:
Company A is expected by analysts to generate Earnings Per Share
(EPS) in 2020 of $4.10....
2) (4 pts) You estimate that Company X will have earnings per share (EPS) of $4.00...
2) (4 pts) You estimate that Company X will have earnings per share (EPS) of $4.00 next year (end of 2020) and EPS of $4.80 in 2 years (2021). You also estimate that Company X will sell at a P/E multiple of 23 in two years. The dividend payout ratio is expected to be 40%. a) What is your estimation of the intrinsic value of Company X if your required rate of return is 8.0% 2020 2021 Dividends Selling Price...
Joe has a current share price of $215.06 and is expected to have earnings per share...
Joe has a current share price of $215.06 and is expected to have earnings per share (EPS) next year of $17.72 per share. Analysts expect that Al's closest competitor, Joe"s, will have earnings next year of $6.25 per share. What is your current estimate of the value of one share of Al's stock using the method of comparables? a. $64.25 b. $71.89 c. $75.85 d. $89.69 e. $108.04 f. None of the above is within $0.35 of the value of...
Analysts project that Company F will generate negative $20 million FCF at the end of this...
Analysts project that Company F will generate negative $20 million FCF at the end of this year, positive $30 million next year, and positive $40 million in year three. FCF is then expected to grow at a constant rate of 7% per year forever. The company has a wacc of 13%, $10 million in short-term investments, $100 million in debt, and 10 million shares of stock outstanding. What is the instrinsic stock price per share? 6.7.0
PRICE/EARNINGS RATIO A company has an EPS of $3.30, a book value per share of $30.69,...
PRICE/EARNINGS RATIO A company has an EPS of $3.30, a book value per share of $30.69, and a market/book ratio of 3.7x. what is its P/E ratio? The stock price should be rounded to the nearest cent. Round your answer to two decimal places.
PRICE/EARNINGS RATIO A company has an EPS of $4.20, a book value per share of $39.06,...
PRICE/EARNINGS RATIO A company has an EPS of $4.20, a book value per share of $39.06, and a market/book ratio of 1.9x. What is its P/E ratio? The stock price should be rounded to the nearest cent. Round your answer to two decimal places.
In accounting: What is earnings per share (EPS)? What does it measure? Is it better to...
In accounting: What is earnings per share (EPS)? What does it measure? Is it better to have a higher or lower EPS? Why? Is it better to have a higher or lower price-earnings ratio (P-E ratio)? State your reasoning. Is a low PE ratio good and why? What would be considered a high PE ratio
PEGCOR has a P/E ratio of 18.1.Earnings per share are $ 2.72, and the expected EPS...
PEGCOR has a P/E ratio of 18.1.Earnings per share are $ 2.72, and the expected EPS years from today are $ 4.85. Calculate the PEG ratio.
Problem 4-5 Price/Earnings Ratio A company has an EPS of $4.05, a book value per share...
Problem 4-5 Price/Earnings Ratio A company has an EPS of $4.05, a book value per share of $43.74, and a market/book ratio of 3.0x. What is its P/E ratio? The stock price should be rounded to the nearest cent. Round your answer to two decimal places.
PEGCOR has a P/E ratio of 15.0. Earnings per share are $2.00, and the expected EPS...
PEGCOR has a P/E ratio of 15.0. Earnings per share are $2.00, and the expected EPS 5 years from today are $3.22. Calculate the PEG ratio.
The price of C. F. Eye Care Corporation (CFEC) is currently $23 per share. Their earnings...
The price of C. F. Eye Care Corporation (CFEC) is currently $23 per share. Their earnings per share (EPS) is $1.25. Their 5-year average P/E is 22. If CFEC’s earnings per share are expected to grow at 6% next year, what would you expect their price to be?
2) (4 pts) You estimate that Company X will have earnings per share (EPS) of $4.00 next year (end of 2020) and EPS of $4.80 in 2 years (2021). You also estimate that Company X will sell at a P/E multiple of 23 in two years. The dividend payout ratio is expected to be 40%. a) What is your estimation of the intrinsic value of Company X if your required rate of return is 8.0% 2020 2021 Dividends Selling Price...
PRICE/EARNINGS RATIO A company has an EPS of $3.30, a book value per share of $30.69, and a market/book ratio of 3.7x. what is its P/E ratio? The stock price should be rounded to the nearest cent. Round your answer to two decimal places.
PRICE/EARNINGS RATIO A company has an EPS of $4.20, a book value per share of $39.06, and a market/book ratio of 1.9x. What is its P/E ratio? The stock price should be rounded to the nearest cent. Round your answer to two decimal places.
Problem 4-5 Price/Earnings Ratio A company has an EPS of $4.05, a book value per share of $43.74, and a market/book ratio of 3.0x. What is its P/E ratio? The stock price should be rounded to the nearest cent. Round your answer to two decimal places.
Most questions answered within 3 hours.
-
What is the expression for the uncertainty in the total energy
Etot of equation?
Assume an...
asked 18 minutes ago -
A sledge loaded with bricks has a total mass of 18.5 kg and is
pulled at...
asked 10 minutes ago -
Write a command line to view the long listing of all files,
including hidden files, with...
asked 15 minutes ago -
Predict the reactions, if any, when the
following hydrogen compounds are added to water, and
explain...
asked 15 minutes ago -
In response to the increasing weight of airline passengers, the
Federal Aviation Administration told airlines to...
asked 18 minutes ago -
Events A and B are independent. Suppose event A occurs with
probability 0.63 and event B...
asked 28 minutes ago -
Rubies are essentially alumina Al2O3 with a contaminant of
chromium in the form of Cr2O3. A...
asked 36 minutes ago -
Write a full program that will accept
exactly three command line arguments
that can be interpreted as...
asked 38 minutes ago -
1.histones are proteins that make up nucleosomes. they bind to
the backbone of DNA in chromosomes....
asked 47 minutes ago -
What is the relationship between a variables value and their
probabilities as it is summarized by...
asked 56 minutes ago -
Balance Sheet
DR
CR
Cash
10000
AR
7000
Supplies
500
Equipment
5,000
Accum depreciation
...
asked 54 minutes ago -
Country
Continent
GDP (millions of US$)
Afghanistan
Asia
 
asked 57 minutes ago