### Understanding Financial Ratios and Calculating Earnings Per Share (EPS)On this educational page, we will delve into the financial metrics used to analyze a company's performance, specifically focusing on the Price-to-Earnings (P/E) ratio and Return on Equity (ROE). We will also discuss the calculation of Earnings Per Share (EPS). #### Key Financial Metrics Explained:1. **Earnings Per Share (EPS):** EPS is a critical measure of a company's profitability. It is calculated as: \[ \text{EPS} = \frac{\text{Net Income}}{\text{Outstanding Shares}} \]2. **Price-to-Earnings (P/E) Ratio:** The P/E ratio indicates the market's valuation of a company's earnings and is calculated by: \[ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{EPS}} \]3. **Return on Equity (ROE):** ROE measures the return generated on the shareholders' equity and is calculated by: \[ \text{ROE} = \frac{\text{Net Income}}{\text{Shareholders' Equity}} \]#### Example Data and Calculations:**Selected Data for Dalton Company for Year 3:**- **Common Stock (1,800 Shares):** $97,800- **Preferred Stock (1,200 Shares at $25 Par, 4%):** $30,000- **Less: Treasury Stock (3,000 Shares at $25 Par, $28 Market Value):** $255,000- **Retained Earnings:** $281,250- **Total Shareholders' Equity:** $966,250**Net Income:** $27,000**Market Price per Share:** $39.000Using the provided data, let’s perform the key calculations:1. **Earnings Per Share (EPS):** \[ \text{EPS} = \frac{\text{Net Income}}{\text{Common Shares}} = \frac{27,000}{1,800} = 15 \]2. **Price-to-Earnings (P/E) Ratio:** \[ \text{P/E Ratio} = \frac{39.000}{15} = 2.6 \]3. **Return on Equity (

Earning Per Share is the share of earning that is available to Equity shareholder on per share. It…

Selected data for Dalton Company for Year 3 follows: Earnings (net income) 255,000 Common stock (45,000 shares no par, market value $28) $330,000 Preferred stock (13,200 shares at $25 par, 4%) 008 L6 $ Retained earnings 281,250 Less: Treasury stock Preferred (1,800 shares) Common (1,800 shares) 000'L2S 000'zt Total stockholders' equity 000'6E $827,250 equired Calculate Dalton Company's earnings per share ratio, price-earnings ratio and return on equity ratio. (Round you ecimal places.) armings per share rice-earnings ratio eturn on equity

Selected data for Dalton Company for Year 3 follows: Earnings (net income) 255,000 Common stock (45,000 shares no par, market value $28) $330,000 Preferred stock (13,200 shares at $25 par, 4%) 008 L6 $ Retained earnings 281,250 Less: Treasury stock Preferred (1,800 shares) Common (1,800 shares) 000'L2S 000'zt Total stockholders' equity 000'6E $827,250 equired Calculate Dalton Company's earnings per share ratio, price-earnings ratio and return on equity ratio. (Round you ecimal places.) armings per share rice-earnings ratio eturn on equity

Century 21 Accounting Multicolumn Journal

11th Edition

ISBN:9781337679503

Author:Gilbertson

Publisher:Gilbertson

Chapter17: Financial Statement Analysis

Section17.4: Analyzing Financial Statements Using Financial Ratios

Problem 1WT

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