Earnings per Share and Price-Earnings Ratio A company reports the following: Net income $829,000 Preferred dividends $47,000 Shares of common stock outstanding 85,000 Market price per share of common stock $104.88 a. Determine the company's earnings per share on common stock. Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required. b. Determine the company's price-earnings ratio. Round to one decimal place.
Earnings per Share and Price-Earnings Ratio A company reports the following: Net income $829,000 Preferred dividends $47,000 Shares of common stock outstanding 85,000 Market price per share of common stock $104.88 a. Determine the company's earnings per share on common stock. Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required. b. Determine the company's price-earnings ratio. Round to one decimal place.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A company report the following
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**Earnings per Share and Price-Earnings Ratio**
A company reports the following:
- **Net Income:** $829,000
- **Preferred Dividends:** $47,000
- **Shares of Common Stock Outstanding:** 85,000
- **Market Price per Share of Common Stock:** $104.88
**Steps for Calculation:**
**a. Determine the company's earnings per share on common stock.**
Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.
*Calculation Box:*
$_________
**b. Determine the company's price-earnings ratio.**
Round to one decimal place.
*Calculation Box:*
_________
---
**Explanation:**
### Calculating Earnings per Share (EPS)
**Formula:**
\[ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Shares of Common Stock Outstanding}} \]
### Calculating Price-Earnings (P/E) Ratio
**Formula:**
\[ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share}} \]
To find the EPS:
1. Subtract the preferred dividends from net income.
2. Divide the result by the number of shares of common stock outstanding.
To find the P/E Ratio:
1. Divide the market price per share by the EPS calculated in the previous step.
These calculations help investors understand the profitability and valuation of a company.
---
For interactive tools and detailed step-by-step instructions, please refer to the financial educational section on [Our Educational Website](#).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0da0a9ed-480c-4a1e-9dd3-aae3fbebf8de%2Fc71408e8-5a91-44e6-b909-31b0866d8646%2Fs6ztf7v_processed.jpeg&w=3840&q=75)
Transcribed Image Text:---
**Earnings per Share and Price-Earnings Ratio**
A company reports the following:
- **Net Income:** $829,000
- **Preferred Dividends:** $47,000
- **Shares of Common Stock Outstanding:** 85,000
- **Market Price per Share of Common Stock:** $104.88
**Steps for Calculation:**
**a. Determine the company's earnings per share on common stock.**
Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.
*Calculation Box:*
$_________
**b. Determine the company's price-earnings ratio.**
Round to one decimal place.
*Calculation Box:*
_________
---
**Explanation:**
### Calculating Earnings per Share (EPS)
**Formula:**
\[ \text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Shares of Common Stock Outstanding}} \]
### Calculating Price-Earnings (P/E) Ratio
**Formula:**
\[ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share}} \]
To find the EPS:
1. Subtract the preferred dividends from net income.
2. Divide the result by the number of shares of common stock outstanding.
To find the P/E Ratio:
1. Divide the market price per share by the EPS calculated in the previous step.
These calculations help investors understand the profitability and valuation of a company.
---
For interactive tools and detailed step-by-step instructions, please refer to the financial educational section on [Our Educational Website](#).
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