The following amounts were taken from the financial statements of Leaf Company: $\begin{array}{lrr}&2020&2019\
\text { Total assets } & \$ 800,000 & \$ 1,000,000 \
\text { Net sales } & 720,000 & 650,000 \
\text { Gross profit } & 352,000 & 320,000 \
\text { Net income } & 150,000 & 117,000 \
\text { Weighted average number of common shares outstanding } & 50,000 & 90,000 \
\text { Market price of common stock } & \$ 64,50 & \$ 39
\end{array}$ The price-earnings ratio for 2020 is

Question

Quizplus · Accepted Answer

The price-earnings (P/E) ratio is calculated by dividing the market price per share by the earnings per share (EPS). For 2020, the EPS is $150,000 net income divided by 50,000 shares, which equals $3 per share. The market price is $64.50, so the P/E ratio is $64.50 / $3 = 21.5 times.

The Following Amounts Were Taken from the Financial Statements of Leaf