Question

Sampson, whose current stock price is $45.00, reported the following information for the most recent period:

Inventory: $15,000 (beginning) and $25,000 (ending)

Accounts receivable: $40,000 (beginning) and $80,000 (ending)

Revenue: $300,000

Operating expenses: $30,000

Inventory turnover: 3.0

AR turnover: 12.0

Debt to equity ratio: 0.6

Average common shares outstanding: 84,000

What is Sampson's PE ratio?

Answer 1

Cost of goods sold:

Inventory turnover ratio = Cost of goods sold ÷ Average inventory

3.0 = Cost of goods sold ÷ Average inventory

Cost of goods sold = Average inventory x 3.0

= [($15,000+$25,000)/2] x 3.0

= $20,000 x 3.0

=$60,000

Earning per share:

Revenue	$300,000
Cost of goods sold	($60,000)
Gross profit	$240,000
Operating expenses	($30,000)
Net income	$210,000
÷ Average common shares outstanding	84,000
= Earning per share	$       2.50

PE ratio:

PE ratio = Current stock price ÷ Earning per share

= $45.00 ÷ $2.50

= 18.00