Bluegold, Inc. reported total shareholders’ equity at $40,000 and net income was $30,000. The company currently...
Bluegold, Inc. reported total shareholders’
equity at $40,000 and net income was
$30,000. The company currently has 10,000
shares outstanding. The price per share for
Bluegold is currently $25. What is the firm’s
P/E ratio? What is the firm’s P/B ratio? What
do these numbers indicate about how
shareholders view Bluegold?
Homework Answers
Earnings Per Share, EPS = Net Income/Number of shares outstanding
EPS = 30,000/10,000 = $3
P/E = Price/EPS
P/E = 25/3 = 8.3333333333
PE ratio indicates how much each share of the company costs per dollar of the net income.
Book value of equity per share = Equity/Number of shares outstanding
Book value = 40,000/10,000 = $4
P/B = 25/4 = 6.25
This indicates that if the firm were to liquidate its assets, then each shareholder will get $6.25 per $1 of shareholders' equity.
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