Baggs Corp. Use the selected data presented below from the financial statements
ID: 2376461 • Letter: B
Question
Baggs Corp.
Use the selected data presented below from the financial statements of Baggs Corp. for 2012 and 2011 to answer the questions that follow.
2012 2011
Net income $110,000 $123,000
Cash dividends paid on preferred stock $ 12,000 $ 15,000
Cash dividends paid on common stock $ 42,000 $ 38,000
Weighted average number of common shares outstanding $105,000 $ 95,000
Market price per share of common stock at the end of the year $ 16.00 $ 13.00
For the datea above for Baggs Corp.
A) Calculate earnings per share for 2012 for Baggs. Why is this considered one of the most quoted ratios for public companies? Which investors, common or preferred or both, desire this information?
B) Calculate the price/earnings ratio for 2012 for Baggs. Why is this ratio important to investors? Explain.
Explanation / Answer
Hi,
Please find the answer as follows:
Part A:
EPS (2012) = (Net Income - Preferred Dividend)/Weighted average number of common shares outstanding = (110000 - 12000)/105000 = .93
It is considered as one of the most quoted ratios for public companies as it highlights the proportion of income earned allocated to common stockholders. It is frequently used in the valuation of a company and is used while making investments in any company
EPS can be used by both.
Part B:
P/E Ratio (2012) = Market Value per Share/Earnings per Share = 16/.93 = 17.20
This ratio is important because it reflects the growth anticipated in the stock price by the investors. This ratio can be used to make a decision as to whether purchase a stock or not.
Thanks.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.