518 Chapter 12 Financial Statements
- Suppose that the stock price for Texas Hypothetical Supply Corp. (from Exercise 21) is $58.55. Calculate the PE and
price-to-book ratios. - A company’s book value is $48.95 per share. The stock price is $137.22. What is the price-to-book ratio?
- The owner of the Tastee Lard Donut Shoppe believes that the business could be sold for $870,000. If this is so, what is
the company’s PE ratio? - If a company earns $4.74 per share and its PE ratio is 22.5, what is its stock price?
- Magnum Opus Corp. is considering buying out a chain of video rental stores, which earned $3,725,543 last year. The
company’s management believes that a PE multiple of 16.5 is appropriate for this business. On this basis, what price
would management offer for the chain?
D. Grab Bag
- For each of the ratios listed below, state whether a business is generally better off if its value of the ratio is high or low.
a. Return on assets
b. Inventory turnover ratio
c. Current ratio
d. Liabilities-to-equity ratio- For each of the ratios listed below, state whether a business is generally better off if its value of the ratio is high or low.
a. Net profi t margin
b. Return on equity
c. Quick ratio
d. Average collection days- a. Suppose that a company has annual earnings per share of $2.56 and the stock sells with an 18.5 PE ratio. What is
the stock price per share?
b. Suppose that a company has annual earnings per share of $2.56 and the stock sells with a 22.5 PE ratio. What is
the stock price per share? - Five years ago you bought stock in a company. The PE ratio was 15. Today the PE ratio is 25. Have you made a profi t?
- If you are trying to determine whether a company is carrying too heavy a debt load, which of the ratios defi ned in this
section would be the most useful to know? - If you are trying to determine whether a company is likely to have trouble paying its bills in the near term, which of the
ratios defi ned in this section would be the most useful to know?