Chapter 11, Problem 2BTN

To determine

Earnings per Share:

It shows how much a shareholder earns on his one share. It is determined by dividing net income from outstanding shares.

Price Earnings Ratio:

It shows how much a shareholder pays for every $1 of its dividend. It is determined by dividing Price of share by dividend.

$\text{Price-earnings}\text{ratio}=\frac{\text{Market}\text{Value}\text{of}\text{each}\text{Share}}{\text{Earnings}\text{per}\text{share}}$

To identify: Earning per share of the common stock, market price, price-earnings ratio, compare it with industry norm and prepare a memorandum.