Question

31, 2021. E10-15 The financial statements of Friendly Fashions include the following selected data (in millions): Calculate and analyze ratios (L010-8) ($ in millions) Sales Net income Stockholders' equity Average shares outstanding (in millions) Dividends per share Stock price 2021 $10,043 $ 312 $ 1,850 675 $ 0.31 $ 6.20 2020 $11,134 $ 818 $ 2.310 Required: 1. Calculate the return on equity in 2021. 2. Calculate the dividend yield in 2021. 3. Calculate earnings per share in 2021. 4. Calculate the price-earnings ratio in 2021.

Answer 1

Solution:

For 2021 : Net income: $312m, Shareholder's equity : $1850m, Shares Outstanding : $675m, Dividend per share : $0.31 and Share price or Market value per share : $6.2

1. Return on equity = Net Income / Shareholder's equity

Return in equity for 2021 is $312m / $1850m = 16.86% or 0.1686

2. Dividend Yield = Annual Dividend / Share Price

Dividend Yield in 2021 is $0.31 / $6.2 = 5% or 0.05

3. Earnings per share = (Net income - Preferred Dividends) / Shares outstanding

Earnings per share in 2021 = $312m / $675m = $0.462 per share

4. Price earnings Ratio = Market price per share / Earnings per share

Price earnings Ratio in 2021 is $6.2 / $0.462 = 13.42