Selected data for Putin Company for 2014 and additional information on industry

Question

Selected data for Putin Company for 2014 and additional information on industry averages follow.

$1529500

       

Calulate price earnings ratio and return on equity                  

Earnings (net income) $ 185,000   Preferred stock (13,000 shares at $40 par, 2%) $ 520,000   Common stock (44,900 shares no par, market value $51) 520,000   Retained earnings 567,500 $ 1,607,500   Less: Treasury stock       Preferred (1,300 shares) $ 55,000       Common (1,300 shares) 23,000 78,000 Total Stockholders equity

$1529500

       

  Industry averages      Earnings per share $ 4.40      Price-earnings ratio 9.80      Return on equity 11.90 %

Calulate price earnings ratio and return on equity                  

Explanation / Answer

Price to earning ratio = Price per share/EPS

EPS = net income / number of shareholders

= 185,000 / 44,900

= $ 4.12 per share

PE Ratio = 51/ 4.12

= 12.38

Return on equity = Net income / total common equity

= 185,000 / 520,000

= 35.58%

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