Question

Markus Company’s common stock sold for $4.00 per share at the end of this year. The company paid a common stock dividend of $0.80 per share this year. It also provided the following data excerpts from this year’s financial statements:     

	Ending Balance		Beginning Balance
Cash	$	45,500	$	39,200
Accounts receivable	$	82,000	$	61,200
Inventory	$	67,600	$	82,000
Current assets	$	195,100	$	182,400
Total assets	$	648,000	$	689,200
Current liabilities	$	72,500	$	73,500
Total liabilities	$	188,000	$	169,200
Common stock, $1 par value	$	145,000	$	145,000
Total stockholders’ equity	$	460,000	$	520,000
Total liabilities and stockholders’ equity	$	648,000	$	689,200

     

	This Year
Sales (all on account)	$	900,000
Cost of goods sold	$	522,000
Gross margin	$	378,000
Net operating income	$	228,000
Interest expense	$	12,000
Net income	$	151,200

rev: 05_25_2017_QC_CS-89969

2. What is the price-earnings ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

	Price-earnings ratio

Answer 1

Price-Earnings Ratio (P/E Ratio)

Earnings per share = Net Income / Number of common shares outstanding

= $151,200 / 145,000 Common Shares outstanding

= $1.04 per share

Price-Earnings Ratio (P/E Ratio) = Market Price per share / Earnings per share

= $4.00 per share / $1.04 per share

= 3.85 Times

“Therefore, the Price-Earnings Ratio (P/E Ratio) will be 3.85 Times”