Chapter 17, Problem 22E

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem
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# Price-earnings ratio; dividend yieldThe table that follows shows the stock price, earnings per share, and dividends per share for three companies for a recent year: a. Determine the price-earnings ratio and dividend yield for the three companies. Round ratios and percentages to one decimal place as appropriate. b. Explain the differences in these ratios across the three companies.

(a) (1)

To determine

Determine Price earnings ratio.

Explanation

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

Price/earnings ratio is used to determine the profitability of a company. This ratio is abbreviated as P/E.

Formula:

Price/earningsÂ ratio=Â MarketÂ priceÂ perÂ shareÂ ofÂ commonÂ stockEarningsÂ perÂ share

Calculate Price earnings ratio for D&C.

Price/EarningsÂ ratioÂ =Â MarketÂ priceÂ perÂ shareEarningsÂ perÂ share=â€‰$82.29â€‰perÂ share$4.98â€‰perÂ share=â€‰16.5

Calculate Price earnings ratio for A

(2)

To determine

Determine Dividend yield.

(b)

To determine

Explain the differences in the ratio across the companies.

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