Required Information [The following informetion apples to the questions displeyed below] Selected Financial Dets for Variety Worid follows: (S in nillions except share data) Net incone DEvidends an prefarred stock Awarage shares cutstanding (in sillians) Stock price 2021 S 122 S 21a S 30 S 21 25e see S11.47 S8.42 2a. Calculste the priceearnings reto in 2020 and 2021. (Enter your Price-eaming ratio values to two decimal places. Enter your answers in millions (Le. 5,550.000 should be entered es 5.5S) Prios-Earmings Ratio 2020 2021 2-6. In wihich year s the stock priced lawer in reietion to reported eamings? O 2020 O 2021
Required Information [The following informetion apples to the questions displeyed below] Selected Financial Dets for Variety Worid follows: (S in nillions except share data) Net incone DEvidends an prefarred stock Awarage shares cutstanding (in sillians) Stock price 2021 S 122 S 21a S 30 S 21 25e see S11.47 S8.42 2a. Calculste the priceearnings reto in 2020 and 2021. (Enter your Price-eaming ratio values to two decimal places. Enter your answers in millions (Le. 5,550.000 should be entered es 5.5S) Prios-Earmings Ratio 2020 2021 2-6. In wihich year s the stock priced lawer in reietion to reported eamings? O 2020 O 2021
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![## Financial Analysis Example
### Required Information
**The following information applies to the questions displayed below.**
**Selected Financial Data for Variety World follows:**
| | 2021 | 2020 |
|--------------------------------------|-------|-------|
| Net Income | $120 | $210 |
| Dividends on preferred stock | $16 | $28 |
| Average shares outstanding (in millions) | 32 | 40 |
| Stock price | $11.47| $10.42|
### Questions and Instructions
**2.a** Calculate the price-earnings ratio in 2020 and 2021. (Enter your Price-earnings ratio values to two decimal places. Enter your answers in millions (i.e., 5,550,000 should be entered as 5.55).)
**Price-Earnings Ratio Table:**
| Year | Price-Earnings Ratio |
|------|----------------------|
| 2020 | |
| 2021 | |
**2.b** In which year is the stock priced lower in relation to reported earnings?
- [ ] 2020
- [ ] 2021
### Explanation
- **Price-Earnings Ratio (P/E Ratio):** This is calculated by dividing the market value per share by the earnings per share (EPS). It provides an idea of what the market is willing to pay for each dollar of earnings.
- **Net Income and Dividends:** These are financial metrics that indicate the profitability and distribution of earnings.
- **Average Shares Outstanding:** Reflects the number of shares that were on the market during a given period.
- **Stock Price:** This is the market price at which a share is traded.
**Use this data to calculate and analyze the price-earnings ratios for the years 2020 and 2021.**](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa3df5b63-8420-4e4f-b302-e11e0dfef4c4%2F1933804c-7071-4334-b976-d640a2c68531%2Fo6kc8o_processed.png&w=3840&q=75)
Transcribed Image Text:## Financial Analysis Example
### Required Information
**The following information applies to the questions displayed below.**
**Selected Financial Data for Variety World follows:**
| | 2021 | 2020 |
|--------------------------------------|-------|-------|
| Net Income | $120 | $210 |
| Dividends on preferred stock | $16 | $28 |
| Average shares outstanding (in millions) | 32 | 40 |
| Stock price | $11.47| $10.42|
### Questions and Instructions
**2.a** Calculate the price-earnings ratio in 2020 and 2021. (Enter your Price-earnings ratio values to two decimal places. Enter your answers in millions (i.e., 5,550,000 should be entered as 5.55).)
**Price-Earnings Ratio Table:**
| Year | Price-Earnings Ratio |
|------|----------------------|
| 2020 | |
| 2021 | |
**2.b** In which year is the stock priced lower in relation to reported earnings?
- [ ] 2020
- [ ] 2021
### Explanation
- **Price-Earnings Ratio (P/E Ratio):** This is calculated by dividing the market value per share by the earnings per share (EPS). It provides an idea of what the market is willing to pay for each dollar of earnings.
- **Net Income and Dividends:** These are financial metrics that indicate the profitability and distribution of earnings.
- **Average Shares Outstanding:** Reflects the number of shares that were on the market during a given period.
- **Stock Price:** This is the market price at which a share is traded.
**Use this data to calculate and analyze the price-earnings ratios for the years 2020 and 2021.**
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