Earnings per Share: It shows how much a shareholder earns on his one share. It is determined by dividing net income from outstanding shares. Price Earnings Ratio : It shows how much a shareholder pays for every $1 of its dividend. It is determined by dividing Price of share by dividend. Price-earnings ratio = Market Value of each Share Earnings per share To identify: Earning per share of the common stock, market price, price-earnings ratio, compare it with industry norm and prepare a memorandum.

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Chapter 11, Problem 4BTN

To determine

Earnings per Share:

It shows how much a shareholder earns on his one share. It is determined by dividing net income from outstanding shares.

Price Earnings Ratio:

It shows how much a shareholder pays for every $1 of its dividend. It is determined by dividing Price of share by dividend.

Price-earnings ratio=Market Value of each ShareEarnings per share

To identify: Earning per share of the common stock, market price, price-earnings ratio, compare it with industry norm and prepare a memorandum.

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