The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

Table 1(millions of $)

Pettijohn Inc. Balance Sheet

Assets: Liabilities:

Cash and marketable securities $1,554 Accounts payable $7,980

Accounts receivable 9,660 Notes payable 5,880

Inventories 13,440 Accrued taxes 4,620

Total current assets 24,654 Total current liabilities $18480

Net fixed assets $17,346 Long-term debt 10,920

Total assets $42,000 Common Stock 3,360

Retained Earnings 9,240

T. Liabilities equity $42,000

Table 2(millions of $)

Pettijohn Inc. Income Statement Other Information

Net sales (all credit) $58,000 The common shares are trading in

Operating Costs except depreciation $54,978 the stock market for $77 each.

Depreciation expense $ 1,029

EBIT $2,793 Shares outstanding 175 million

Interest expense 1,050

Earnings before taxes $1,743

Income taxes $ 601

Net income $ 1,133

Common stock dividends $509.83

Change in retained earnings $1,233.17

Based on the information in Table 2, the net profit margin is:

What is the P/E ratio? What does a high P/E ratio indicate?

What is the return on equity? Assume that current retained earnings have not been added to the equity account.