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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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