Calculating Earnings Per Share, Price-Earnings Ratio, and Book Value. As a stockholder in Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $9 million, liabilities of $5 million, after-tax earnings of $2 million, and 750,000 outstanding shares of common stock.

a. Calculate the earnings per share of Bozo Oil's common stock.

b. Assuming that a share of Bozo Oil's common stock has a market value of $40, what is the firm's price-earnings ratio?

c. Calculate the book value of a share of Bozo Oil's common stock.

Question

Business

Devin Wise

4 November, 00:01

Calculating Earnings Per Share, Price-Earnings Ratio, and Book Value. As a stockholder in Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $9 million, liabilities of $5 million, after-tax earnings of $2 million, and 750,000 outstanding shares of common stock.

a. Calculate the earnings per share of Bozo Oil's common stock.

b. Assuming that a share of Bozo Oil's common stock has a market value of $40, what is the firm's price-earnings ratio?

c. Calculate the book value of a share of Bozo Oil's common stock.

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Answers (1)

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Joyce Baxter · Answer 1

a) EPS 2.367 dollars

b) price-earning ratio 15

c) book value of a common share 5.33

Explanation:

a) earning per share: income / shares outstanding

2,000,000 / 750,000 = 2.67

b) price / EPS

40 / 2.67 = 15

c) We determinate this using the accounting equation:

Assets = Liab + Equity

Assets 9,000,000

Liabilities 5,000,000

Equity 4,000,000

equity / shares outstanding:

4,000,000 / 750,000 = 5.3333