Earnings per Share and Price-Earnings Ratio A company reports the following: Net income $730,000 Preferred dividends...
Earnings per Share and Price-Earnings Ratio
A company reports the following:
| Net income | $730,000 |
| Preferred dividends | $41,000 |
| Shares of common stock outstanding | 65,000 |
| Market price per share of common stock | $87.98 |
a. Determine the company's earnings per share
on common stock. Round your answer to the nearest cent. Use the
rounded answer of requirement a for subsequent requirement, if
required.
$
b. Determine the company's price-earnings ratio. Round to one decimal place.
Homework Answers
Answer- a)- The company's earnings per share on common stock=$10.6 per share.
Explanation- Earning per Share = (Net Income – Preferred Dividends) / Weighted Average number of Common shares outstanding
= ($730000-$41000)/65000 shares
= $10.6 per share
b)- The company's price-earnings ratio=8.3 times.
Explanation-Profit earnings ratio = Market price per share on common stock/Earning per share on common stock
= $87.98 per share/$10.6 per share
= 8.3 times
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