Calculate the following market value ratios. Roberts Company had an average of 1

Question

Calculate the following market value ratios. Roberts Company had an average of 10,000 shares outstanding during 2012, the net income was $87,000, and the stock price on December 31, 2012 was $41.00. Depreciation Expense was $50,000. Total assets are $2,570,000 and total liabilities are $1,165,000.

a) P/E Ratio _____________
Price/Earnings per share

b) P/CF Ratio ____________

Price/cash flow per share
Cash flow = Net income + NonCash Expenses

NonCash Expenses generally include depreciation and amortization

c) M/B Ratio _____________
Market price/Book value per share

How much investors are willing to pay for $1 of book value equity.

Explanation / Answer

a) P/E Ratio = Market price / EPS = $41 / (87000 / 10000) = $41/8.7 = 4.713 times

b) P / CF Ratio = Market price / Cash flw per share = $41 / (87000 + 50000) /10000 = $41/ 13.7 = 2.993 times

c) M/B Ratio = Market price / Book value per share = $41 / (2570000 - 1165000) / 10000 = $41/140.5 = 29.18%

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