The following amounts were taken from the financial statements of Leaf Company: $\begin{array}{lrr}&2017&2016\
\text { Total assets } & \$ 800,000 & \$ 1,000,000 \
\text { Net sales } & 720,000 & 650,000 \
\text { Gross profit } & 352,000 & 320,000 \
\text { Net income } & 150,000 & 117,000 \
\text { Weighted average number of common shares outstanding } & 50,000 & 90,000 \
\text { Market price of common stock } & \$ 64.50 & \$ 39
\end{array}$ The price-earnings ratio for 2017 is
A) 21.5 times.
B) 36 times.
C) 4.5 times.
D) 3.0 times.

Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated as the market price per share divided by earnings per share (EPS). For 2017, EPS = Net Income / Weighted Average Shares = $150,000 / 50,000 = $3. The P/E ratio = $64.50 / $3 = 21.5 times.

The Following Amounts Were Taken from the Financial Statements of Leaf