Question

Phelps, Inc. had assets of $87,938, liabilities of $19,174, and 13,190 shares of outstanding common stock at December 31, 2017. Net income for 2017 was $9,761. The company had assets of $103,319, liabilities of $23,003, 11,527 shares of outstanding common stock, and its stock was trading at a price of $10 per share at December 31, 2018. Net income for 2018 was $10,719. Required: Calculate EPS for 2018. Calculate ROE for 2018. Calculate the Price/Earnings Ratio for 2018.

Answer 1

Phelps, Inc.

EPS for 2018 $0.93

ROE for 2018 13.3%

Price/Earnings Ratio for 2018 10.75

Step-by-step explanation:

a) Data and Calculations:

December 31, 2017 December 31, 2018

Assets $87,938 $103,319

Liabilities 19,174 23,003

Equity $68,764 $80,316

Outstanding common

stock 13,190 11,527

Stock price per share $10

Net income $9,761 $10,719

EPS for 2018 $0.93 ($10,719/11,527)

ROE for 2018 13.3% ($10,719/$80,316*100)

Price/Earnings Ratio for 2018 10.75 ($10/$0.93)

EPS (Earnings Per Share) = Net income/Number of outstanding shares

ROE (Return on Equity) = Net income/Equity * 100

Price/Earnings Ratio = Stock price/EPS