Question

Lassiter Industries has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a profit margin of 4.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio

Answer 1

Answer:

Price-earnings ratio = 26.7

Explanation:

given data

annual sales = $328,000

stock outstanding = 8,000 shares

profit margin = 4.5 percent

price-sales ratio = 1.20

solution

we get here first Price per share that is

Price per share = price-sales ratio × $\frac{annual\ sales}{stock\ outstanding}$    .............1

Price per share = 1.20  × $\frac{328000}{8000}$  

Price per share =  $49.20

and now we get Earnings per share that is

Earnings per share = ( annual sales  × profit margin ) ÷ stock outstanding .........2

put here value and we get

Earnings per share = $\frac{328000*0.045}{8000}$

Earnings per share =  $1.845

and

now we can get Price-earnings ratio that is

Price-earnings ratio = Price per share ÷ Earnings per share  ...........3

Price-earnings ratio = $\frac{49.20}{1.845}$  

Price-earnings ratio = 26.7