(Calculating EPS, price-to-earnings ratio, and dividend ratios, LO 2) Kovach Ltd.

(Kovach) is a publicly traded company. During its year ended March 31, 2006 Kovach reported a net loss of $18,750,000. During fiscal 2006 Kovach declared and paid quarterly dividends of $0.05 per share on its 12,000,000 outstanding common shares. During the year no shares were issued and none were repurchased from investors. In addition, Kovach paid $2,500,000 in preferred dividends. On March 31, 2006 Kovach’s share price was $6.75.

Required:

a. Calculate the following ratios for 2006. Explain and interpret the meaning of each ratio:

i. basic earnings per share for fiscal 2006 ii. price-to-earnings ratio on March 31, 2006 iii. dividend payout ratio for fiscal 2006

b. Explain how it is possible for Kovach to pay a dividend when it reported a loss during fiscal 2006.
€ Explain why Kovach would have a share price that is greater than zero when the company is losing money.