Lake Inc. and River Inc. reported net incomes of $310,000 and $250,000, respectively, for the most...
Lake Inc. and River Inc. reported net incomes of $310,000 and $250,000, respectively, for the most recent fiscal year. Both companies had 50,000 shares of common stock issued and outstanding. The market price per share of Lake’s stock was $65, while River’s sold for $69 per share. Required a. Determine the P/E ratio for each company. b. Based on the P/E ratios computed in Requirement a, which company do investors believe has the greater potential for growth in income?
Homework Answers
Calculate EPS
| Lake Inc | River Inc | |
| Net income | 310000 | 250000 |
| Share outstanding | 50000 | 50000 |
| EPS | 6.2 | 5 |
a) PE ratio
| Lake Inc | River Inc | |
| MPS | 65 | 69 |
| EPS | 6.2 | 5 |
| MPS/EPS | 65/6.2 = 10.48 Times | 69/5 = 13.80 Times |
b) River Inc has the greater potential for growth in income
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Lake Inc. and River Inc. reported net incomes of $310,000 and
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interpret the firm’s financial health during fiscal year 2009. Note
that the balance sheet and the income statement entries in this
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attempt to add individual entries to confirm either current assets
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