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. Required:
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:

$\frac{net income}{weighted average shares outstanding}$

Now to find net income we will take help of  asset turnover ratio :$\frac{net sales}{total asset}$

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

$\begin{align}\frac{x}{ 86000}\end{align}$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 =$\frac{900000}{750000}$

       Market To Book Ratio = 1.2