Question

Little Book LTD has total assets of $860 000. There are 75 000 shares of stock outstanding, total book value of $750 000 with a market value of $12 a share. The firm has a profit margin of 6.5% and a total asset turnover of 1.5.

a) Calculate the company’s EPS?

b) What is the market –to- book ratio?

Answer 1

a) Little book LTD earning per share is $1.118 per share.  

Explanation:

To calculate earning per share we will use following formula:$\frac{NET INCOME}{WEIGHTED AVERAGE SHARE OUTSTANDING}$

Now to find net income we will take help of  asset turnover ratio :$\frac{NET SALES}{TOTAL ASSET}$

NOTE :  LET x BE THE NET SALES DURING THE YEAR.

Asset turnover ratio = $\frac{x}{860000}$

1.5 × $860000 = x

x (net sales) = $1290000

Outstanding shares = 75000 shares

So Net Income  = $1290000×.065

                         = $83850

Now Earning per share = $\frac{83850}{75000}$

 Earning per share = $1.118

b)  Market to Book Ratio will be 1.2 for Little Book LTD.

Explanation:

Market to Book Ratio =$\frac{MARKET CAPITALIZATION}{TOTAL BOOK VALUE}$

Market Capitalization = $ 75000× $ 12

                                   = $900000

So, Market To Book Ratio =$\frac{900000}{750000}$ =  1.2

    So , Market To Book Ratio is 1.2  for little book ltd.