Question

BC Corporation has 1,800 shares outstanding and earned $2,700 last year on assets of $2 million and equity of $1.5 million. What is the PE ratio if the stock is currently selling at $18 per share?

Answer 1

Answer:

PE ratio = 12

Explanation:

Data provided in the question:

Number of shares outstanding = 1,800

Earning on assets = $2,700

Now,

Earnings per share, EPS = [ Net income ] ÷ [ shares outstanding  ]

= [ 2,700] ÷ [ 1,800 ]  

= 1.5

Thus,

PE ratio = [ Price per share] ÷ [ Earnings per share]        

= 18 ÷ 1.5

= 12          

Hence,

PE ratio = 12