   Chapter 17, Problem 17.21EX

Chapter
Section
Textbook Problem

Earnings per share, price-earnings ratio, dividend yieldThe following information was taken from the financial .statements of Tolbert Inc. for December 31 of the current fiscal year: Common stock, $20 par (no change during the year)$10,000,000 Preferred $4 stock,$40 par (no change during the year) 2,500,000 The net income was $1,750,000, and the declared dividends on the common stock were$1,125,000 for the current year. The market price of the common stock is \$45 per share.For the common stock, determine (a) the earnings per share, (b) the price-earnings ratio, (c) the dividends per share, and (d) the dividend yield. Round ratios and percentages to one decimal place, except for per-share amounts.

(a)

To determine

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

Given info: Items from financial statements

To determine: Earnings per share on the common stock

Explanation

Earnings per share help to measure the profitability of a company. Earnings per share are the amount of profit that is allocated to each share of outstanding stock.

Formula:

Earningspershare = Netincome – PreferreddividendsWeighted average number of common shares outstanding

Working note for determination of preferred dividends and weighted average number of common shares outstanding are provided below:

Preferred dividends = Preferred stockParvalue × Stock value

(b)

To determine
Price earnings ratio.

(c)

To determine
Dividend per share of common stock.

(d)

To determine
Dividend yield ratio.

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