Question

Knowledge Check 01 During the current year, Armstrong Corporation reported net income of $18 million and EPS of $5.00 per share. The average number of common shares outstanding during the year was 3.6 million. The price of a share of its common stock was $2.50 at the beginning of the year and $5.00 at the end of the year. What is the company’s price/earnings (P/E) ratio at the end of the year?

Answer 1

Answer:

PE ratio is 1

Explanation:

Price earning ratio determines the ratio of price of a share by the earning per share . It measures the times value which a investor pays for each $1 earning of the shares.

To calculate the price earning ratio at the end of the year, we will use the price of the share at the end of the year.

Price Earning Ratio = Market Price / Earning Per share

Price Earning Ratio = $5 / $5

Price Earning Ratio = 1 times

Answer 2

Answer:

P/E = 1

Explanation:

The price earnings (P/E ) can be used to determine the value of a stock , The ratio relates the price of a stock to its earning. A stock with a higher P/R indicates a high potent for growth.

The price earning ratio is computed as follows:

P/E = price per share/EPS

P/E = 5/5 = 1