Question

In 2013, XYZ Corporation had total earnings of 500 million and XYZ retained 20 percent of its earnings for future investments. If the price of a share of XYZ stock is 70 and if 100 million shares of its stock is outstanding, then what is the price-earnings ratio?

Answer 1

The price-earnings ratio of XYZ Corporation in 2013 was 70.

Step-by-step explanation:

The price-earnings ratio is a financial metric that measures the valuation of a company's stock. It is calculated by dividing the market price per share by the earnings per share. In this case, the total earnings of XYZ Corporation in 2013 were 500 million, and 20% of these earnings were retained for future investments. This means the retained earnings were 100 million. To calculate the earnings per share, we divide the retained earnings by the number of shares outstanding. Therefore, the earnings per share is 1 dollar.

As per the given information, the price per share of XYZ stock is 70 dollars and the earnings per share is 1 dollar. So, the price-earnings ratio can be calculated by dividing the price per share by the earnings per share:

Price-Earnings Ratio = 70 / 1 = 70

Therefore, the price-earnings ratio of XYZ Corporation is 70.