The following amounts were taken from the financial statements of Ando Company: $\begin{array}{lrr}&2017&2016\
\text { Total assets } & \$ 800,000 & \$ 1,0 \overline{00,000} \
\text { Net sales } & 720,000 & 650,000 \
\text { Gross profit } & 352,000 & 320,000 \
\text { Net income } & 108,000 & 117,000 \
\text { Weighted average number of } & & \
\quad \text { common shares outstanding } & 90,000 & 90,000 \
\text { Market price of common stock } & \$ 42 & \$ 39
\end{array}$ The price-earnings ratio for 2017 is

Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated by dividing the market price of a share by the earnings per share. The earnings per share is calculated by dividing the net income by the weighted average number of common shares outstanding. For 2017, the net income is $108,000 and the weighted average number of common shares outstanding is 90,000. Therefore, the earnings per share is $108,000 / 90,000 = $1.20. The market price of a share is $42. Therefore, the price-earnings ratio is $42 / $1.20 = 35 times.

The Following Amounts Were Taken from the Financial Statements of Ando