Question

Grace The Brand Jewelry generated the following information from its financial statements:

Earnings after interest and taxes R600 000

Earnings per share R2,50 per share

Shareholder equity R1000 000

Market to book ratio 2,60

What is the company’s market price per share?

Answer 1

Explanation:

We can use the market-to-book ratio to calculate the company's market price per share.

Market-to-book ratio = Market value per share / Book value per share

Book value per share = Shareholder equity / Number of shares outstanding

We are given the market-to-book ratio as 2.60, and the shareholder equity as R1000 000. We can calculate the book value per share as follows:

Book value per share = R1000 000 / Number of shares outstanding

To calculate the number of shares outstanding, we can use the earnings per share (EPS) formula:

EPS = Earnings / Number of shares outstanding

We are given the earnings per share as R2.50, and the earnings after interest and taxes as R600 000. Substituting these values, we get:

R2.50 = R600 000 / Number of shares outstanding

Solving for Number of shares outstanding:

Number of shares outstanding = R600 000 / R2.50 = 240,000 shares

Now, we can calculate the book value per share:

Book value per share = R1000 000 / 240,000 = R4.17 per share

Finally, we can calculate the market value per share using the market-to-book ratio:

Market-to-book ratio = Market value per share / Book value per share

2.60 = Market value per share / R4.17

Market value per share = 2.60 x R4.17 = R10.83 per share

Therefore, the company's market price per share is R10.83.