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Buy Now and Gerald's EZ Furniture are two publicly traded rental companies. They reported the following in their financial statements (in millions of dollars, except

Buy Now and Gerald's EZ Furniture are two publicly traded rental companies. They reported the following in their financial statements (in millions of dollars, except per-share amounts and stock prices):

Buy Now Gerald's EZ Furniture
2016 2015 2016 2015
Net income $ 114 $ 166 $ 121 $ 175
Total stockholders' equity 1,107 1,170 1,345 1,299
Earnings per share 1.52 2.21 2.27 3.01
Stock price when annual results reported 24.82 28.97 27.72 34.73

Required:

  1. 1-a. Compute the 2016 ROE for each company. Express ROE as a percentage. TIP: Remember that the bottom of the ROE ratio uses the average stockholders equity.

  2. 1-b. Which company appears to generate greater returns on stockholders equity in 2016?

  3. 2-a. Compute the 2016 P/E ratio for each company.

  4. 2-b. Which company do investors appear to value more?

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