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1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Price-Earnings Ratio (PE Ratio)

Financial Accounting

14. Financial Statement Analysis

Ratios: Price-Earnings Ratio (PE Ratio)

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Multiple Choice

Tougher Company's current year income statement showed an EPS of $1.25 per share. If total common equity totaled $600,000 (40,000 common shares), preferred dividends were $10,000 (10,000 preferred shares), and the market price of common and preferred stock are $25 and $50, respectively, what is the company's P/E ratio?

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Verified step by step guidance

Understand the formula for the Price-to-Earnings (P/E) ratio: $ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share (EPS)}} $.

Identify the given values: The market price per share of common stock is $25, and the EPS is $1.25.

Substitute the given values into the P/E ratio formula: $ \text{P/E Ratio} = \frac{25}{1.25} $.

Perform the division to find the P/E ratio. This step involves dividing the market price per share by the EPS.

Interpret the result: The P/E ratio indicates how much investors are willing to pay per dollar of earnings, which helps in assessing the company's valuation.