Question

Little Book LTD has total assets of $860 000. There are 75 000 shares of stock outstanding, total book value of $750 000 with a market value of $12 a share. The firm has a profit margin of 6.5% and a total asset turnover of 1.5.

a) Calculate the company’s EPS?

b) What is the market –to- book ratio?

Answer 1

a) Little book LTD earning per share is $1.118 per share.

Step-by-step explanation:

To calculate earning per share we will use following formula:
`(NET INCOME)/(WEIGHTED AVERAGE SHARE OUTSTANDING)`

Now to find net income we will take help of asset turnover ratio :
`(NET SALES)/(TOTAL ASSET)`

NOTE : LET x BE THE NET SALES DURING THE YEAR.

Asset turnover ratio =
`(x)/(860000)`

1.5 × $860000 = x

x (net sales) = $1290000

Outstanding shares = 75000 shares

So Net Income = $1290000×.065

= $83850

Now Earning per share =
`(83850)/(75000)`

Earning per share = $1.118

b) Market to Book Ratio will be 1.2 for Little Book LTD.

Step-by-step explanation:

Market to Book Ratio =
`(MARKET CAPITALIZATION)/(TOTAL BOOK VALUE)`

Market Capitalization = $ 75000× $ 12

= $900000

So, Market To Book Ratio =
`(900000)/(750000)` = 1.2

So , Market To Book Ratio is 1.2 for little book ltd.