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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Earnings per share and price-earnings ratio

A company reports the following:

Net income $185,000
Preferred dividends $25,000
Shares of common stock outstanding 100,000
Market price per share of common stock $20

a. Determine the company’s earnings per share on common stock.

b. Determine the company’s price-earnings ratio. Round to one decimal place.

a)

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

To calculate: Earnings per share.

Given info: Net income, preference dividends, shares of common stock outstanding.

Explanation

Explanation

A portion of profit that an individual earns from each share is referred to earnings per share.

Formula:

Earnings per share

b)

To determine

To calculate: Price earnings ratio.

Given info: Earnings per share (Requirement 1) and Market price per share

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