Pacific Gas and Electric: Earnings per share Pacific Gas and Electric Company is

Question

Pacific Gas and Electric: Earnings per share Pacific Gas and Electric Company is a large gas and electric utility operating in northern and central California Three recent years of financial data for Pacific Gas and Electric are as follows (in millions) Net income Preferred dividends Average number of common shares outstanding a. Determine the earnings per share for Years 1-3. Round your answers to two decimal places Year 3 $1,450 14 468 Year 2 $828 14 Year 1 $830 14 424 Year 3 Year 2 Year 1 EPS b. Interpret the trend in earnings per share using horizontal analysis for the three years in terms of the change in earnings and average shares outstanding

Explanation / Answer

Earnings per share = (Net Income - Preferred dividend)/Average number of Shares Outstanding

Earnings per share for year 3 = (1450-14)/468 =$ 3.07

Earnings per share for Year 2 = (828-14)/444 = $1.83

Earnings per share for year 1 = (830-14)/424 = $1.93

B)

Growth in Earnings for year 2 = (1.83-1.93)/1.83 *100 = -5.46%

Growth in Earnings for Year 3 = (3.07-1.83)/1.83x100 = 67.76%

Growth in Net Income in year 2 = 830-828 = 2

Growth in Net income in year 3 = 828-1450 = -622

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