Market Ratios

Question 1

Price/Earnings Ratio

Answer 1

Market Price per share/EPS

Where EPS = Net income - Preferred Dividends paid/weighted average of common stocks outstanding

Question 2

Market to Book

Answer 2

Market Price per share/Book Value per share

Question 3

Book Value per share

Answer 3

(Total Shareholder’s equity - Preferred equity)/# of common stock outstanding

Question 4

Book Value per share

Answer 4

(Total Shareholder’s equity - Preferred equity)/# of common stock outstanding

Question 5

Dividends Yield ratio

Answer 5

Annual dividends paid per share

÷

Market Price per share

Question 6

Dividend Payout

Answer 6

Common Dividends Paid

÷

Earnings available to shareholders

(aka Net income - Pref Divs)

Question 7

Basic Earnings Per share

Answer 7

(Net income - Preferred Dividends)/weighted average of common stocks outstanding

Question 8

Diluted Earnings per share

Answer 8

(Net income - preferred dividends

÷

(weight of common stock outstanding + add’tl common shares from conversion)

Question 9

Price to EBITDA

Answer 9

Market Price per share/EBITDA

Question 10

Impact of convertible bonds on EPS

Answer 10

[Total dividends paid on bonds that are convertible BEFORE conversion * (1 - Tax rate)]

÷

by # of shares to be issued if stock is converted

note: # of shares to be issued if stock is converted is:
* (total value of convertible bonds/face value of 1 convertible bond) * # of converted stocks AFTER conversion happens*

Question 11

Earnings Yield

Answer 11

EPS/Market Price

Question 12

Shareholders return

Answer 12

(End stock price per share - Begn + annual dividends paid share)

÷

Begn stock price

Question 13

Outdoor Manufacturing has the following results for 2020:

6% convertible bond, $1,000 face amount, each bond convertible into 2 shares of common stock$1,500,000Tax rate25%5% convertible preferred stock, $100 par, 2,500 shares, each convertible into one share of common stock$250,000Weighted average number of common stock shares outstanding120,000 sharesGross profit$1,800,000

What is the impact of convertible preferred stock on earnings per share for 2020?

Answer 13

Short answer: $5

How:

[Total dividends paid on bonds that are convertible BEFORE conversion]

÷

by # of shares to be issued if stock is converted

Question 14

Huntex Corp. had the following capital structure and earnings for the year 20X1:

Preferred shares (5%, $100 par) outstanding throughout 20X1100,000Common shares ($50 par) outstanding January – April200,000Common shares ($50 par) outstanding May – December300,000Net income for 20X1$1,000,000

What was the basic earnings per share (rounded to nearest cent) for 20X1?

Answer 14

1. Find BEPS
2. BEPS = Net income - Preferred dividends / weighted average of common stock outstanding
3. Answer: 1.87

Question 15

Equation: Return on Common Equity (ROCE)

Answer 15

Net income - Preferred dividends paid if firm dissolves

÷

Average common equity,

where Average common equity is:

(End equity + bgn equity)/2

Question 16

Equation: R