Question

Dakota Inc. and Jersey & Company are two large companies that manufacture and sell equipment used in the construction, mining, agricultural, and forestry industries. The companies reported the following data (in millions) for two recent years:
Dakota Jersey
Year 2 Year 1 Year 2 Year 1
Net income $2,122 $3,765 $1,935 $3,177
Average number of common shares outstanding 594 599 334 363

Required:
a. Determine the earnings per share in Year 2 and Year 1 for each company. Round your answers to two decimal places.
b. Evaluate the relative profitability of the two companies.

Answer 1

Answer:

a. The earnings per share in Year 2 and Year 1 for Dakota would be as follows:

earnings per share in Year 1 is $6.29

earnings per share in Year 2 is $3.57

The earnings per share in Year 2 and Year 1 for Jersey would be as follows:

earnings per share in Year 1 is $8.75

earnings per share in Year 2 is 5.79

b. Dakota is the company with more profitability

Explanation:

a. In order to calculate the earnings per share in Year 2 and Year 1 for each company we would have to use the following formula:

earnings per share in Year x=Net income year x/Average number of common shares outstanding

Therefore, the earnings per share in Year 2 and Year 1 for Dakota would be as follows:

earnings per share in Year 1=$3,765/599=$6.29

earnings per share in Year 2=$2,122/594=$3.57

The earnings per share in Year 2 and Year 1 for Jersey would be as follows:

earnings per share in Year 1=$3,177/363=$8.75

earnings per share in Year 2=$1,935/334=5.79

b. The net income from Year 1 Year 2 of Dakota are higher than Jersey, so Dakota is the company with more profitability