Question

During 2017 the Stone Industries and the Stark Industries reported net incomes of $700,000 and $960,000,...

During 2017 the Stone Industries and the Stark Industries reported net incomes of $700,000 and
$960,000, respectively. Both companies had 200,000 shares of common stock issued and outstanding.
The market price per share of Stone's stock was $50, while Stark’s sold for $85 per share.

A) Determine the Price to Earnings Ratio for Each company.

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Homework Answers

Answer #1

Earnings Per Share = Net Income / Shares Outstanding

Stone Industries = $ 700,000 / 200,000 Shares

= $ 3.50

Stark Industries = $ 960,000 / 200,000 Shares

= $ 4.80

Price to Earnings Ratio = Market Price Per Share /Earnings Per Share

Stone Industries = $ 50 / $ 3.50

= 14.28571429

=14.29

Stark Industries = $ 85 / $ 4.80

= 17.7083333

= 17.71

Hence the correct answer is

Stone Industries = 14.29

Stark Industries = 17.71

Note : The answer is rounded off to two decimal places.

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