Question

KO has reported a net income of $896,797 for the year. The company's share price is $18, and the company has 480,443 shares outstanding. Compute the firm's price-earnings ratio.

Answer 1

Calculate the EPS by dividing the net income by the number of shares outstanding, then divide the share price by the EPS to get the price-earnings ratio, which in this case is approximately 9.63.

Step-by-step explanation:

To compute the firm's price-earnings ratio, you divide the market price per share by the earnings per share (EPS). With a net income of $896,797 and 480,443 shares outstanding, we first calculate the EPS, which is the net income divided by the number of shares outstanding, thus:

EPS = Net Income / Shares Outstanding

EPS = $896,797 / 480,443

EPS = approximately $1.87

Next, to find the price-earnings ratio (P/E ratio), we divide the share price by the EPS:

P/E Ratio = Share Price / EPS

P/E Ratio = $18 / $1.87

P/E Ratio = approximately 9.63