Question

Richards Corporation had net income of $231,971 and paid dividends to common stockholders of $58,300. It had 55,100 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $66 per share. The price-earnings ratio (rounded to two decimal places) is:_________

Answer 1

It is 15.68 times

Step-by-step explanation:

Price-Earnings Ratio = Market Price per share (MPS)/Earning per share (EPS).

Where EPS = $231,971 /55,100

= $4.21

Hence, Price-Earnings Ratio = 66/4.21

=15.68 times

P/E ratio shows the expectations of the market and is the price you pay per unit of current earnings.

The ratio is as well being used for valuing companies and to find out whether they are overvalued or undervalued most especially by the investors.