Chapter 19, Problem 19.13BYP

Analysis Case 19–13

Analyzing financial statements; price-earnings ratio; dividend payout ratio

• LO19–13

IGF Foods Company is a large, primarily domestic, consumer foods company involved in the manufacture, distribution, and sale of a variety of food products. Industry averages are derived from Troy’s The Almanac of Business and Industrial Financial Ratios and Dun and Bradstreet’s Industry Norms and Key Business Ratios. Following are the 2018 and 2017 comparative income statements and balance sheets for IGF. The market price of IGF’s common stock is $47 during 2018. (The financial data we use are from actual financial statements of a well-known corporation, but the company name used in our illustration is fictitious and the numbers and dates have been modified slightly to disguise the company’s identity.)

Some ratios express income, dividends, and market prices on a per share basis. As such, these ratios appeal primarily to common shareholders, particularly when weighing investment possibilities. These ratios focus less on the fundamental soundness of a company and more on its investment characteristics.

Required:

1. Earnings per share expresses a firm’s profitability on a per share basis. Calculate 2018 earnings per share for IGF.

2. Calculate IGF’s 2018 price-earnings ratio. The average price-earnings ratio for the stocks listed on the New York Stock Exchange in a comparable time period was 18.5. What does your calculation indicate about IGF’s earnings?

3. Calculate IGF’s 2018 dividend payout ratio. What information does the calculation provide an investor?