Question

Allison & Co. and Bee, Inc. reported the following numbers (in millions) for fiscal year 2014. Allison & Co. Bee, Inc. 555.70 177.24 57.18 $ 88.5933.26 $1,698.30 919.48 Net income Shares outstanding Stock price Total equity 87.13 Calculate the earnings per share, market-to-book ratio, and price-earnings ratio for each company. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,32.16.) Allison &Co Bee, Inc. Earnings per share Market-to-book ratio Price-earnings ratio times times times times times times

Answer 1

Solution:

Calculation of Earnings per share :

The formula for calculating the Earnings per share is

= Net Income / No. of shares outstanding

Allison & Co.:

As per the information given in the question we have:

Net Income = $ 555.70       ;    No. of shares Outstanding = 87.13

Applying the above values in the formula we have

= $ 555.70 / 87.13

= 6.3778

= 6.38 ( when rounded off to two decimal places )

Thus the Earnings per share of Allison & Co. = $ 6.38 = 6.38 times

Bee Inc.:

As per the information given in the question we have:

Net Income = $ 177.24       ;    No. of shares Outstanding = 57.18

Applying the above values in the formula we have

= $ 177.24 / 57.18

= $ 3.0997

= $ 3.10 ( when rounded off to two decimal places )

Thus the Earnings per share for Bee Inc. = $ 3.10 = 3.10 times

Calculation of Market to Book ratio:

The formula for calculating the Market to Book ratio is

= Market value of equity / Total Book value of equity

Allison & co.:

As per the information given in the question we have:

Total Book value of equity = $ 1698.30

Stock Price : $ 88.59    ;    No. of shares outstanding = 87.13

Thus Market value of equity = $ 88.59 * 87.13 = $ 7,718.8467

Applying the above values in the formula we have Market- to –Book value ratio

= $ 7718.8467 / $ 1698.30 = 4.5450

= 4.55 ( when rounded off to two decimal places )

Thus the Market –to – Book value ratio of Allison Co. = 4.55 times

Bree Inc:

As per the information given in the question we have:

Total Book value of equity = $ 919.48

Stock Price : $ 33.26    ;    No. of shares outstanding = 57.18

Thus Market value of equity = $ 33.26 * 57.18 = $ 1901.8068

Applying the above values in the formula we have Market- to –Book value ratio

= $ 1901.8068 / $ 919.48 = 2.0684

= 2.07 ( when rounded off to two decimal places )

Thus the Market –to – Book value ratio of Bree Inc. = 2.07 times

Calculation of Price – Earnings ratio:

The formula for calculating the Price Earnings ratio is

= Market price per share / Earnings per share

Allison co.

As per the information given in the question we have

Market price per share = $ 88.59      ;    Earnings per share = $ 6.38

Applying the above values in the formula we have

= $ 88.59 / $ 6.38 = 13.8856

= 13.89 times ( when rounded off to two decimal places )

Thus the Price Earnings ratio of Allison Co. = 13.89 times

Bree Inc.

As per the information given in the question we have

Market price per share = $ 33.26      ;    Earnings per share = $ 3.10

Applying the above values in the formula we have

= $ 33.26 / $ 3.10 = 10.7290

= 10.73 times ( when rounded off to two decimal places )

Thus the Price Earnings ratio of Bree Inc. = 10.73 times