Question

14. Lassiter Industries has annual sales of $220,000 with 10,000 shares of stock outstanding. The firm has a profit margin of 7.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?

Answer 1

Answer:

Price earning ratio is 16

Explanation:

Profit Margin = (Net profit / Net Sales) x 100

7.5% = Net profit / $220,000

Net Profit = $220,000 x 7.5%

Net Profit = $16,500

Earning Per share = $16,500/ 10,000 = $1.65 per share

Price-sales ratio = Market value /  Sales value

1.20 = Market value / 220,000

1.20 x 220,000 = Share price

Share price = 264,000 / 10,000 =

Share price = 26.40

Price Earning Ratio = 26.40 / 1.65 = 16