FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
A company report the following
--- **Earnings per Share and Price-Earnings Ratio** A company reports the following: - **Net Income:** $829,000 - **Preferred Dividends:** $47,000 - **Shares of Common Stock Outstanding:** 85,000 - **Market Price per Share of Common Stock:** $104.88 **Steps for Calculation:** **a. Determine the company's earnings per share on common stock.** Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required. *Calculation Box:* $_________ **b. Determine the company's price-earnings ratio.** Round to one decimal place. *Calculation Box:* _________ --- **Explanation:** ### Calculating Earnings per Share (EPS) **Formula:** \[ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Shares of Common Stock Outstanding}} \] ### Calculating Price-Earnings (P/E) Ratio **Formula:** \[ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share}} \] To find the EPS: 1. Subtract the preferred dividends from net income. 2. Divide the result by the number of shares of common stock outstanding. To find the P/E Ratio: 1. Divide the market price per share by the EPS calculated in the previous step. These calculations help investors understand the profitability and valuation of a company. --- For interactive tools and detailed step-by-step instructions, please refer to the financial educational section on [Our Educational Website](#).
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Transcribed Image Text:--- **Earnings per Share and Price-Earnings Ratio** A company reports the following: - **Net Income:** $829,000 - **Preferred Dividends:** $47,000 - **Shares of Common Stock Outstanding:** 85,000 - **Market Price per Share of Common Stock:** $104.88 **Steps for Calculation:** **a. Determine the company's earnings per share on common stock.** Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required. *Calculation Box:* $_________ **b. Determine the company's price-earnings ratio.** Round to one decimal place. *Calculation Box:* _________ --- **Explanation:** ### Calculating Earnings per Share (EPS) **Formula:** \[ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Shares of Common Stock Outstanding}} \] ### Calculating Price-Earnings (P/E) Ratio **Formula:** \[ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share}} \] To find the EPS: 1. Subtract the preferred dividends from net income. 2. Divide the result by the number of shares of common stock outstanding. To find the P/E Ratio: 1. Divide the market price per share by the EPS calculated in the previous step. These calculations help investors understand the profitability and valuation of a company. --- For interactive tools and detailed step-by-step instructions, please refer to the financial educational section on [Our Educational Website](#).
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