Question

A company has EPS of $8.00, cash flow per share of $2.00, and a price/cash flow ratio of 16.0x. What is the P/E ratio?

A firm has a profit margin of 4 percent and an equity multiplier of 4.00. Its sales are $100 million and its has total assets of $25 million. What is its ROE?

Company X has $10 million in sales; its ROE is 20 percent and its total assets turnover is 2.5x. The company is 25% equity financed. What is its net income?

Cape Inc. has TATO of 3.5x, ROA of 15% and ROE of 20%. What is the debt ratio? [Hint: Equity ratio = ROA/ROE]

Answer 1

1)

Price/ cash flow ratio = price / cash flow per share

16 = price / 2

price = 32

P/E ratio = price / EPS

P/E ratio = 32 / 8

P/E ratio = 4

2)

Return on Equity = (Net Profit Margin) (Asset Turnover) (Equity Multiplier)

Asset turnover = Sales / asstes

Asset turnover = 100,000,000 / 25,000,000

Asset turnover = 4

ROE = 0.04 * 4 * 4

ROE = 0.64 or 60%

3)

Asset turover ratio = sales / total assets

Asset turover ratio = 10,000,000 / assets

2.5 = 10,000,000 / assets

assets = 4,000,000

25% of 4,000,000 = 1,000,000

Return on equity = Net income / shareholders equity

0.2 = Net income / 1,000,000

Net income = 200,000

4)

Equity ratio = 0.15 / 0.2

Equity ratio = 0.75

debt ratio = 1 - equity ratio

debt ratio = 1 - 0.75

debt ratio = 0.25