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During the year, Lox, Stock and Bagel Inc.'s net income was $60,000. Its average stockholders' equity was $240,000, and it had 120,000 shares outstanding the entire year. Its stock was selling for $10 per share. Its P/E ratio equals ______. The company has no preferred stock.
20.00

Sagot :

Lox, Stock, and Bagel Inc. earned $60,000 in net profits over the course of the year. In the course of the year, it had 120,000 outstanding shares and an average shareholders' equity of $240,000. Shares of the stock were trading for $10 each. It has a 20 Price earning ratio.

But many value investors would use the 20 to 25 range as the typical P/E ratio range to give you an idea of what the market average is. And once more, just as in golf, the lower the P/E ratio, the better an investment the firm is said to be.

P/E Ratio = Market Value per Share / EPS

Now,

Market Price of the Share = $10 per share (given)

EPS (Earnings Per Share) = Net Income  / Average Share Outstanding

EPS = $60,000 / 120,000

= $0.5

So

P/E Ratio = $10 / $0.5

= 20

To learn more about P/E Ratio

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