Answer:
ABC Company
1. E/PS = $3.47
2. Dividends per share = $1.15
3. Book value of share = $31.18
4. Market-to-book ratio = 2.05 : 1
5. Price to earnings ratio (P/E) = 18.44 times
6. Price to Sales ratio (P/S) = 2.11 times or 2.11 : 1
7. A high P/E ratio shows that a company's share is overvalued and vice versa. This knowledge will equip the investor to take position. Some investors are interested in the long-term growth of their investments. Others are interested in the short-term. With P/E ratio, an investor who is interested in the long-term growth can determine the market value and the future earnings growth. For those interested in short-term, they can know when the price is rising to sell off their investment and maximize profit.
Explanation:
Addition to retained earnings = $395,000
Dividend paid out $195,000
Net income $590,000
Ending Equity = $5.3 million
Beginning Equity = $4,905,000 ($5,300,000 - 395,000)
Outstanding common stock shares = 170,000
2) Earnings per share (E/PS) = Earnings or Net Income/ No. of outstanding shares = $590,000/170,000 = $3.47
3) Dividends per share = Dividends paid/ No. of outstanding shares = $195,000/170,000 = $1.15
4) Book value of share = Ending Equity/No. of outstanding shares = $5,300,000/170,000 = $31.18
5) Market-to-book ratio = Market price/book value = $64/$31.18 = 2.05 : 1
6. Price to earnings ratio (P/E) = Market price/EPS = $64: $3.47 = 18.44 times
7. Price to Sales ratio (P/S) = Market Capitalization/Sales Revenue = ($64 x 170,000)/$5,150,000 = 2.11 : 1
8. Market capitalization = Market price of shares multiplied by number of outstanding shares.
