Ch 04- Assignment - Analysis of Financial Statements 6. Market value ratios Ratios are mostly calculated using data drawn from the financial statements of a firm. However, another group of ratios, called market value ratios, relate to a firm's observable market value, stock prices, and book values, Integrating information from both the market and the firm's financial statements Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies Inc. Just reported earnings after tax (also called net income) of $9,250,000 and a current stock price of $12.00 per share. The company is forecasting an increase of 25% for its after-tax income next year, but it also expects it will have to Issue 3,000,000 new shares of stock (raising its shares outstanding from 5,500,000 to 8,500,000). 1 Green Caterpillar's forecast turns out to be correct and its price/earnings (P/E) ratio does not change, what does the company's management expect its stock price to be one year from now? (Round any WE ratio calculation to four decimal places.) $0.71 per share $12.00 per share $7.28 per share $12.14 per share One year later, Green Caterpillar's shares are trading $55.00 per share, and the company reports the value of its total common equity as $16,807,000. Given this information, Green Caterpillar's market-to-book (M/B) ratio is 66.96 Can a company's shares exibit a negative P/E ratio? Yes 1.24 x No 43.14x Which of the following statements is true about market value ratios? 28.76 x Companies with high research and development (R&D) expenses tend to have high P/E ratios Companies with high research and development (RSD) expenses tend to have low P/E ratios