Evaluate the common stock of Nate Distributing Company as an investment. Specifi
ID: 2470427 • Letter: E
Question
Evaluate the common stock of Nate Distributing Company as an investment. Specifically, use the three common stock ratios to determine whether the common stock increased or decreased in attractiveness during the past year. Round calculations and your final answer to three decimal places.
Net income 2014-84000 2013-93000
Dividends to common 2014-28000 2013-16000
Total stockholders equity at year end (includes 92000 shares of common stock) 2014-580000 2013-500000
Preferred Stock, 10% 2014-115000 2013-115000
Market price per share of common stock at year end 2014-19.50 2013-11.50
Explanation / Answer
Price to Earning ratio (P/E)
in 2014 =
19.50 / 0.913 = 21.358
in 2013 =
11.50 / 1.011 = 11.375
Earnings Yield Ratio
in 2014 =
0.913 / 19.50 = 0.04
in 2013 =
1.011 / 11.50 = 0.088
Dividend Yield Ratio
In 2014 =
0.304 / 19.50 = 0.015
In 2013 =
0.174 / 11.50 = 0.015
After seeing result of above ratios it is clear that the common stock decreased in attractiveness during the past year.
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