Question

A company has the following information. What is the price-to-earnings ratio?

Number of common shares	100,000 shares
Common stock price	$25 per share
Total revenue	$1,150,000
Total expenses	980,000
Common dividends	25,000
Preferred dividends	20,000

16.67

17.24

14.71

20.00

Answer 1

Price-to-earnings ratio

Earnings per share [EPS]

Earnings per share = Net income available to common shareholders / Number of common shares outstanding

= [Total revenues – Total expenses – Preferred dividends] / Number of common shares outstanding

= [$1,150,000 - $980,000 - $20,000] / 100,000 Shares

= $150,000 / 100,000 Shares

= 1.50 per share

Price-to-earnings ratio

Price-to-earnings ratio = Common stock price / Earnings per share

= $25.00 per share / $1.50 per share

= 16.67 Times

“Hence, the Price-to-earnings ratio will be 16.67”