Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 12 Special Income and Investment Reporting Issues 567

The following comparative net income and earnings per share data are provided for Research

in Motion Ltd., developer of the BlackBerry®wireless handheld device, for three recent fiscal

years:

Feb. 28, Feb. 28, Mar. 1,

Year ended 2005 2004 2003

Net income $213,387 $51,829 $(148,857)

Basic earnings per share 1.14 0.65 (1.92)

Diluted earnings per share 1.09 0.62 (1.92)

The stock market prices at the end of each of the three fiscal years were as follows:

March 1, 2003 $ 6.65

February 28, 2004 49.45

February 28, 2005 66.11

a. Determine the price-earnings ratio for Research in Motion for each of the three fiscal

years, using basic earnings per share and the ending stock market price. Round to two

decimal places.

b. What conclusions can you reach by considering the price-earnings ratio?

c. Why is the diluted earnings per share less than the basic earnings per share?

Below are some financial statistics for Google, the Web search engine provider, and Burlington

Northern Santa Fe, a large North American railroad (all numbers in thousands, except per share

amounts).

Burlington Northern

Google Santa Fe

Total stockholders’ equity, Dec. 31, 2004 $2,929,056,000 $9,311,000,000

Common shares outstanding, Dec. 31, 2004 193,176,000 376,800,000

Market price, Dec. 31, 2004 $193 per share $ 47 per share

a. Determine the price-book ratio for each company. Round to two decimal places.

b. Explain the difference in the price-book ratio between the two companies.

ExxonMobil Corporationis one of the largest companies in the world. The company explores,

develops, refines, and markets petroleum products. The basic earnings per share for three com-

parative years were as follows:

Years Ended December 31,

2004 2003 2002

Basic earnings per share $3.91 $3.24 $1.69

The company disclosed the following information from the statement of stockholders’ equity (in

millions):

Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2002

Total stockholders’ equity $101,661 $89,915 $74,597

Common shares outstanding 6,401 6,568 6,700

The market price at the end of each year was $33, $40, and $51 for December 31, 2002, 2003, and

2004, respectively.

a. Determine the price-earnings ratio for 2002, 2003, and 2004. Round to two decimal places.

b. Determine the price-book ratio for 2002, 2003, 2004.

c. Interpret your results over the three years.

Exercise 12-25

Price-earnings ratio

Goal 5

Exercise 12-26

Price-book ratio calculations

Goal 5

a. Google, Inc., 12.73

Exercise 12-27

Price-earnings and price-book

ratio calculations

Goal 5

a. 2004: 13.04