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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Debt and price-earnings ratios
Lowe's Companies Inc. (LOW) operates over 1,800 home improvement retail stores and is a competitor of The Home Depot (HD). The following data (in millions) were adapted from a recent financial statement of Lowe's:


Compare the ratios computed in (1)-(3) with those of Home Depot computed in MBA 8-8 for Year 2.

To determine

Concept Introduction:

Price Earnings Ratio:

The price earnings ratio shows the relationship between price of the share and earnings per share. It is calculated with the help of following formula:

  Price Earnings Ratio=Market price per shareEarnings per share

To Indicate:

The Comment on the Price Earnings ratios

Explanation

The Price Earnings ratio for Company A is calculated as follows:

  Price Earnings Ratio=Market price per shareEarnings per share

= 104.43/4.74

=22

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