Jupiter Explorers has $5,800 in sales. The profit margin is 4 percent. There are 5,000 shares of stock outstanding, with a price of $1.70 per share. What is the company's price–earnings ratio?
Question
Jupiter Explorers has 1.70 per share. What is the company's price–earnings ratio?
Solution
To calculate the price-earnings ratio, we first need to find the net income.
Step 1: Calculate Net Income Net income is calculated by multiplying the profit margin by the total sales. In this case, the profit margin is 4 percent, or 0.04, and the total sales are $5,800.
Net Income = Total Sales * Profit Margin Net Income = 232
Step 2: Calculate Earnings Per Share (EPS) Earnings per share is calculated by dividing the net income by the number of shares outstanding. In this case, the net income is $232 and there are 5,000 shares outstanding.
EPS = Net Income / Shares Outstanding EPS = 0.0464
Step 3: Calculate Price-Earnings Ratio The price-earnings ratio is calculated by dividing the price per share by the earnings per share. In this case, the price per share is 0.0464.
Price-Earnings Ratio = Price per Share / EPS Price-Earnings Ratio = 0.0464 Price-Earnings Ratio = 36.64
So, the company's price-earnings ratio is 36.64.
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