15.15 Earnings per Share and Price-Earnings Ratio A company reports the followin

Question

15.15 Earnings per Share and Price-Earnings Ratio

A company reports the following:

a. Determine the company's The profitability ratio of net income available to common shareholders to the number of common shares outstanding.earnings per share on common stock. Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.
$

b. Determine the company's The ratio of the market price per share of common stock, at a specific date, to the annual earnings per share.price-earnings ratio. Round to one decimal place.

Net income $493,000 Preferred dividends $28,000 Shares of common stock outstanding 30,000 Market price per share of common stock $187.55

Explanation / Answer

a. Net income available to common shareholders = Net income - Preferred dividends = 493,000-28,000 = $465,000

Earnings per share = Net income available to common shareholders ÷ Shares of common stock outstanding = 465,000÷30,000 = $15.50 per share

b. Price earning ratio = Market price per share of common stock ÷ Earnings per share = 187.55÷15.50 = 12.1

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