Selected financial information for The Ohio Company is as follows: Year 1 Year 2

Question

Selected financial information for The Ohio Company is as follows:

                                                                Year 1             Year 2
Stockholder's equity:
Preferred Stock, $10 par, 10%                    $100,000         $100,000
Common Stock, $10, par                             200,000           200,000
Additional paid-in capital common stock      150,000           150,000
Retained Earnings                                      1,250,000         1,480,000
Total stockholder's equity                           1,700,000         1,930,000
Total liabilities and stockholder's equity      300,000,000      3,280,000

Net Income    230,000

Additionally, cash dividends declared and paid during Year 2 totaled $165,000 of which $15,000 were preferred dividends. The market price of a share common stock on December 31, Year 2 was $180,000. Note that there are 20,000 shares of common stock ($200,000 / $10 par) at the start and end of year, and no treasury stock, so the average number of shares outstanding is 20,000.

Use the above information to calculate the earnings per share (EPS) and the price earnings (P-E) ratio as of December 31, Year 2.

Explanation / Answer

Earnings per share = 10.75 Price-Earnings = 16.74

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