A company currently has sales of $3,400,000, net profit of $268,000 and 400,000 shares of stock outstanding. The sales and net profit each expected to grow by 7.5% annually. The historical price/sales ratio is 8.5, what price would you project for the stock next year?

Question

Quizplus · Accepted Answer

To project the stock price, first calculate the projected sales for next year: $3,400,000 * 1.075 = $3,655,000. Then, use the price/sales ratio to find the market capitalization: $3,655,000 * 8.5 = $31,067,500. Finally, divide by the number of shares: $31,067,500 / 400,000 = $77.67.

A Company Currently Has Sales of $3,400,000, Net Profit of $268,000