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6 July, 04:32

Edelman Engines has $11 billion in total assets. Its balance sheet shows $1.1 billion in current liabilities, $7.7 billion in long-term debt, and $2.2 billion in common equity. It has 900 million shares of common stock outstanding, and its stock price is $25 per share. What is Edelman's market/book ratio? Round your answer to two decimal places.

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  1. 6 July, 05:17
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    10.23x

    Explanation:

    Market/Book Ratio = Stock Price / Net Book Value per Share

    Stock Price = $25 per share

    Net Book Value per Share = Net Book Value / shares of common stock outstanding

    Shares of common stock outstanding = 900 million shares

    where;

    Total Assets = $11 billion

    Total Liabilities = Current Liabilities + Long-Term Liabilities

    Total Liabilities = $1.1 billion + $7.7 billion

    Total Liabilities = $8.8 billion

    Hence;

    Net Book Value = Total Assets - Total Liabilities

    Net Book Value = $11 billion - $8.8 billion

    Net Book Value = $2.2 billion

    Therefore;

    Net Book Value per Share = Net Book Value / shares of common stock outstanding

    Net Book Value per Share = $2.2 billion / 900 million shares

    Net Book Value per Share = $2,200,000,000 / 900,000,000 shares

    Net Book Value per Share = $2.44 per share

    So;

    Market/Book Ratio = Stock Price / Net Book Value per Share

    Market/Book Ratio = $25 per share / $2.44 per share

    Market/Book Ratio = 10.23x

    It means that Stock is over valued and it has performed well because Market/Book Ratio is greater than 1. So the Stock price is set at higher price in relation to Edelman Engines' Net Book Value, so its Market/Book Ratio is 10.23x.
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