Leonatti Labs\' year-end price on its common stock is $16. The firm has a profit

Question

Leonatti Labs' year-end price on its common stock is $16. The firm has a profit margin of 7%, total assets of $33 million, a total asset turnover ratio of 0.80, no preferred stock, and 4 million shares of common stock outstanding.
Calculate the PE ratio for Leonatti Labs. (Do not round intermediate calculations and round your final answer to the nearest whole number.)

Explanation / Answer

Total asset turnover = .80 = Sales/$33m. => Sales = $33m. x .8 = $26.4m. => Profit margin = .07 = Net income/$26.4m. => Net income = .07 x $26.4m. = $1.848m => EPS = $1.848m./4m. = $0.462 per share => PE ratio = $16/$0.462 = 34.63 times

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