Question

Common Stockholders' Profitability Analysis

A company reports the following:

Net income	$120,000
Preferred dividends	4,800
Average stockholders' equity	975,610
Average common stockholders' equity	587,755

Determine (a) the the return on stockholders’ equity and (b) the return on common stockholders’ equity. If required, round your percentages to one decimal place.

a. The rate earned on stockholders' equity	%
b. The rate earned on common stockholders' equity	%

Earnings per Share and Price-Earnings Ratio

A company reports the following:

Net income	$404,500
Preferred dividends	$23,000
Shares of common stock outstanding	35,000
Market price per share of common stock	$58.86

a. Determine the company's earnings per share on common stock. Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.
$

b. Determine the company's price-earnings ratio. Round to one decimal place.

Answer 1

1
a
Net income	120000
Divide by Average stockholders' equity	975610
The rate earned on stockholders' equity	12.3%
b
Net income for Common stockholders	115200	=120000-4800
Divide by Average common stockholders' equity	587755
The rate earned on common stockholders' equity	19.6%
2
a
Net income	404500
Less: Preferred dividends	23000
Net income for Common stockholders	381500
Divide by Shares of common stock outstanding	35000
Earnings per share on common stock	10.90
b
Market price per share of common stock	58.86
Divide by Earnings per share on common stock	10.90
Company's price-earnings ratio	5.4