Question

Calculating Earnings Per Share, Price-Earnings Ratio, and Book Value. As a stockholder in Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $9 million, liabilities of $5 million, after-tax earnings of $2 million, and 750,000 outstanding shares of common stock.
a. Calculate the earnings per share of Bozo Oil’s common stock.
b. Assuming that a share of Bozo Oil’s common stock has a market value of $40, what is the firm’s price-earnings ratio?
c. Calculate the book value of a share of Bozo Oil’s common stock.

Answer 1

Answer:

a) EPS 2.367 dollars

b) price-earning ratio 15

c) book value of a common share 5.33

Explanation:

a) earning per share: income / shares outstanding

2,000,000 / 750,000 = 2.67

b) price / EPS

40 / 2.67 = 15

c) We determinate this using the accounting equation:

Assets = Liab + Equity

   Assets    9,000,000

  Liabilities 5,000,000

  Equity      4,000,000

equity / shares outstanding:

4,000,000 / 750,000 =  5.3333