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Computing the Price-Earnings Ratio The income statement, statement of retained earnings, and balance sheet for Santiago Systems are as follows: Santiago Systems Income Statement For

Computing the Price-Earnings Ratio

The income statement, statement of retained earnings, and balance sheet for Santiago Systems are as follows:

Santiago Systems Income Statement For the Year Ended December 31, 20X2
Amount Percent
Net sales $5,345,000 100.0%
Less: Cost of goods sold (3,474,250) 65.0
Gross margin $1,870,750 35.0
Less: Operating expenses (1,140,300) 21.3
Operating income $730,450 13.7
Less: Interest expense (27,000) 0.5
Income before taxes $703,450 13.2
Less: Income taxes (40%)* (281,380) 5.3
Net income $422,070 7.9
* Includes both state and federal taxes.

Santiago Systems Statement of Retained Earnings For the Year Ended December 31, 20X2
Balance, beginning of period $1,205,500
Net income 422,070
Total $1,627,570
Preferred dividends (40,000)
Dividends to common stockholders (150,000)
Balance, end of period $1,437,570

Santiago Systems Comparative Balance Sheets At December 31, 20X1 and 20X2
20X1 20X2
Assets
Current assets:
Cash $1,900,000 $2,100,000
Marketable securities 350,000 400,000
Accounts receivable (net) 625,000 675,000
Inventories 230,000 240,000
Other 50,000 50,000
Total current assets $3,155,000 $3,465,000
Property and equipment:
Land $900,000 $900,000
Building and equipment (net) 1,240,800 1,192,800
Total long-term assets $2,140,800 $2,092,800
Total assets $5,295,800 $5,557,800
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable, short term $247,300 $256,230
Accounts payable 240,000 250,000
Current maturity of long-term debt 3,000 4,000
Accrued payables 150,000 160,000
Total current liabilities $640,300 $670,230
Long-term liabilities:
Bonds payable, 9% 300,000 300,000
Total liabilities $940,300 $970,230
Stockholders' equity:
Preferred stock, $25 par, 8% $500,000 $500,000
Common stock, $1.00 par 150,000 150,000
Additional paid-in capital* 2,500,000 2,500,000
Retained earnings 1,205,500 1,437,570
Total stockholders' equity $4,355,500 $4,587,570
Total liabilities and stockholders' equity $5,295,800 $5,557,800
* For common stock only.

Also, assume that the price per common share for Santiago is $20.

Required:

Compute the price-earnings ratio. Round earnings per share to two decimal places and use the rounded number to calculate the price-earnings ratio. Round the answer to two decimal places.

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