Question

The financial statements of Friendly Fashions include the following selected data (in millions):

($ in millions) 2018 2017
Sales $ 8,343 $ 9,434
Net income $ 170 $ 648
Stockholders' equity $ 1,780 $ 2,220
Average Shares outstanding (in millions) 710 -
Dividends per share $ .28
Stock price $ 8.00 -


Required:
Calculate the following ratios for Friendly Fashions in 2018. (Enter your Dividend yield and Price-earning ratio values to two decimal places. Enter your answer in millions (i.e. 5,500,000 should be entered as 5.5).)


1-Calculate the return on equity in 2015. (Enter your answers in millions.)

2-Calculate the return on the market value of equity in 2015. (Enter your answers in millions.)

3-Calculate earnings per share in 2015. (Enter your answers in millions.)

4-Calculate the price-earnings ratio in 2015. (Enter your answers in millions.)

Answer 1

The return on equity (ROE) in 2018 for Friendly Fashions is 9.55 million%. The earnings per share (EPS) in 2018 is $0.24 per share.

Step-by-step explanation:

1. The return on equity (ROE) is calculated by dividing the net income by the stockholders' equity and multiplying by 100. In 2018, the ROE for Friendly Fashions is calculated as follows:

ROE = (Net Income / Stockholders' Equity) * 100 = ($170 million / $1,780 million) * 100 = 9.55 million%

2. The return on the market value of equity (ROE-MV) is calculated by dividing the net income by the market value of equity and multiplying by 100. Since the market value of equity is not given in the question, we cannot calculate this ratio.

3. Earnings per share (EPS) is calculated by dividing the net income by the average shares outstanding. In 2018, the EPS for Friendly Fashions is calculated as follows:

EPS = Net Income / Average Shares Outstanding = $170 million / 710 million = $0.24 per share

4. The price-earnings ratio (P/E ratio) is calculated by dividing the stock price by the earnings per share. Since the stock price is not given in the question, we cannot calculate this ratio.

Answer 2

Friendly Fashions:

Ratios Calculations in 2018:

1) Return on Equity = Net Income divided by Equity x 100

Return on Equity = $170/$1,780 x 100 = 9%

2) Return on the market value of equity = share price/average shares outstanding = $8/710 x 100 = 1.12%

3) Earnings per share = Net Income divided by average shares outstanding = $170/710 = $0.24

4) Price-earnings ratio = Market value per share/Earnings per share = $8/$0.24 = $33.3

Step-by-step explanation:

1) Return on Equity: The return on equity is a measure of the financial performance of an entity, which evaluates the effectiveness of management in using assets to create profits.

2) Return on the market value of equity: This measures the profit yield on the stock market capitalization. It measures the intrinsic value of a stock by comparing the share price to the number of shares outstanding. It is also called the market capitalization.

3) Earnings per share: This is a measure of a company's profitability. It can be used as an indicator to pick stock to buy. To determine the net income used for this calculation, it is necessary to deduct the dividend of preferred stock, where it exists, before arriving at the net income.

4) Price-earnings ratio: This company valuation method measures the share price relative to the earnings. It is also called the price multiple and earnings multiple. It shows how much an investor can pay in dollars in order to earn a dollar of earnings. It also indicates if a stock is overvalued or undervalued.