Question

A firm's year-end price on its common stock is $55. The firm has a profit margin of 6 percent, total assets of $75 million, a total asset turnover ratio of 0.9, no preferred stock, and 2.5 million shares of common stock outstanding. Calculate the PE ratio for the firm.

Answer 1

34

Step-by-step explanation:

Price/Earning ratio (PE) = Price per Share ÷ Earnings per share

where,

Earnings per share = Net Income ÷ Number of Common Stock Outstanding

= (0.9 x $75 million x 0.06) ÷ 2.5 million shares

= 1.62

therefore,

Price/Earning ratio (PE) = $55 ÷ $1.62 = 33.95 or 34