Question

ou are given the following information for Smashville, Inc.

Cost of goods sold:	$	224,000
Investment income:	$	2,400
Net sales:	$	389,000
Operating expense:	$	90,000
Interest expense:	$	7,400
Dividends:	$	15,000
Tax rate:		35	%

Current liabilities:	$	24,000
Cash:	$	21,000
Long-term debt:	$	24,000
Other assets:	$	40,000
Fixed assets:	$	136,000
Other liabilities:	$	5,000
Investments:	$	44,000
Operating assets:	$	37,000

  

During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $16,000. At the end of the year, Smashville stock sold for $53 per share. Calculate the price-book ratio, price-earnings ratio, and the price-cash flow ratio

Answer 1

Given, stock price of Smashville= $53

Book Equity value of the firm= Total assets-Liabilities= (21000+40000+136000+44000+37000) - (24000+24000+5000)

=$2,25,000

So, book value per share= 225000/17000= $13.24

Price-book ratio= 53/13.24= 4

Net income for the given year is given as= (Net sales+Investment Income-Cost of Goods sold-Depreciation-Interest Expense-Operating expense)*(1-Tax rate)

=(389,000+2,400-224,000-16,000-7,400-90,000)*(1-0.35) = $35,100

Earnings per share= 35100/17000 = 2.06

Price-earnings ratio= 53/2.06= 25.73

Let us assume that all sales are cash sales and no changes are made in the working capital and no capital investments are made for the year.

So, cash flow for the fiscal year is given as= Net income+Depreciation= 35100+16000= 51100

Cash flow per share= 51100/17000= 3

So, price-cash flow ratio= 53/3= 17.67