FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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![## Financial Analysis Example
### Required Information
**The following information applies to the questions displayed below.**
**Selected Financial Data for Variety World follows:**
| | 2021 | 2020 |
|--------------------------------------|-------|-------|
| Net Income | $120 | $210 |
| Dividends on preferred stock | $16 | $28 |
| Average shares outstanding (in millions) | 32 | 40 |
| Stock price | $11.47| $10.42|
### Questions and Instructions
**2.a** Calculate the price-earnings ratio in 2020 and 2021. (Enter your Price-earnings ratio values to two decimal places. Enter your answers in millions (i.e., 5,550,000 should be entered as 5.55).)
**Price-Earnings Ratio Table:**
| Year | Price-Earnings Ratio |
|------|----------------------|
| 2020 | |
| 2021 | |
**2.b** In which year is the stock priced lower in relation to reported earnings?
- [ ] 2020
- [ ] 2021
### Explanation
- **Price-Earnings Ratio (P/E Ratio):** This is calculated by dividing the market value per share by the earnings per share (EPS). It provides an idea of what the market is willing to pay for each dollar of earnings.
- **Net Income and Dividends:** These are financial metrics that indicate the profitability and distribution of earnings.
- **Average Shares Outstanding:** Reflects the number of shares that were on the market during a given period.
- **Stock Price:** This is the market price at which a share is traded.
**Use this data to calculate and analyze the price-earnings ratios for the years 2020 and 2021.**](https://content.bartleby.com/qna-images/question/a3df5b63-8420-4e4f-b302-e11e0dfef4c4/1933804c-7071-4334-b976-d640a2c68531/o6kc8o_processed.png)
Transcribed Image Text:## Financial Analysis Example
### Required Information
**The following information applies to the questions displayed below.**
**Selected Financial Data for Variety World follows:**
| | 2021 | 2020 |
|--------------------------------------|-------|-------|
| Net Income | $120 | $210 |
| Dividends on preferred stock | $16 | $28 |
| Average shares outstanding (in millions) | 32 | 40 |
| Stock price | $11.47| $10.42|
### Questions and Instructions
**2.a** Calculate the price-earnings ratio in 2020 and 2021. (Enter your Price-earnings ratio values to two decimal places. Enter your answers in millions (i.e., 5,550,000 should be entered as 5.55).)
**Price-Earnings Ratio Table:**
| Year | Price-Earnings Ratio |
|------|----------------------|
| 2020 | |
| 2021 | |
**2.b** In which year is the stock priced lower in relation to reported earnings?
- [ ] 2020
- [ ] 2021
### Explanation
- **Price-Earnings Ratio (P/E Ratio):** This is calculated by dividing the market value per share by the earnings per share (EPS). It provides an idea of what the market is willing to pay for each dollar of earnings.
- **Net Income and Dividends:** These are financial metrics that indicate the profitability and distribution of earnings.
- **Average Shares Outstanding:** Reflects the number of shares that were on the market during a given period.
- **Stock Price:** This is the market price at which a share is traded.
**Use this data to calculate and analyze the price-earnings ratios for the years 2020 and 2021.**
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