Calculation of Market Measures Based on the financial statements of Cowan Kitche

Question

Calculation of Market Measures Based on the financial statements of Cowan Kitchen Counters, Inc., as shown below: Cowan Kitchen Counters, Inc Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2 20-1 Net Sales (all on account) Cost of goods sold Gross profit Operating expenses other expense (interest) Income tax expense Net income $2,571,000 1,870,100 $700,900 319,000 24,200 174,400 $183,300 $2,164,700 1,613,500 $551,200 222,700 24,200 106,200 $198,100 Cowan Kitchen Counters, Inc. Comparative Balance Sheet December 31, 20-2 and 20-1 20-2 20-1 Cash Government notes Accounts receivable (net) $258,400 $241,900 245,400 245,400 900,200 799,700

Explanation / Answer

Computation of Market measures for   20 -2 (a) Calculation of Price Earning Ratio Price earning Ratio = Current market Price / Earning per Share Current market price =$25 per Share Earnings Per Share = Net Income / Number of common Stock Earnings per share = $183300 /180000 =$1.02 Price Earning ratio = $25 /$1.02 =24.51 (b) Book Value per share of Common stock Book Value of per share Common Stock =[ Book Value of Assets - Outside Liabilities ] /number of Shares common stock Book Value of per share common stock = [$2989800 - $918200) /180000 =$2,071,600/180000 =$11.51

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