Suppose that the a has a market value per share of $123, has net income of $516

Question

Suppose that the a has a market value per share of $123, has net income of $516 million, and 20 million shares

outstanding. Additionally, the firm had a common equity price of $100 as of the flotation date.

a.) What is the firm's P/E ratio?

b.) What is the firm's P/B ratio?

c.) Discuss what your answers to part a and b may denote about how the firm's management has ran the

firm, what the firm's future growth prospects happen to be, and whether the stock is s good

buying or (short) selling opportunity

Explanation / Answer

Ans) Market price of the share = $123 Net income = $516 Million Number of Shares = 20 Million Shares Earning per share = $516/20 Net income / Number of Shares Earning per share = $   25.80 a.) What is the firm's P/E ratio? P/E ratio = Market value per Share/ Earning per share = $516/25.80 P/E Ratio = 20 b.) What is the firm's P/B ratio? Current Market Capitalization P/B Ratio = Total Shareholders' Equity = $123 million * 20 million $100 million * 20 million = $2460/$2000 amount in million = 1.23 c.) Discuss what your answers to part a and b may denote about how the firm's management has ran the ans) The company P/E Ratio is so good but the company PB ratio is not good because it was showing 1.23%. Company better to sale the stock at right price

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