Financial information for Retro Designs includes the following selected data: What is the company's price-earnings ratio?
$$\begin{array} { | l r | }
\hline \text { Net income (in millions) } & \$ 175 \
\hline \text { Preferred stock dividends (in millions) } & \$ 25 \
\hline \text { Common shares outstanding (in millions) } & 250 \
\hline \text { Stock price } & \$ 10.00 \
\hline
\end{array}$$

Question

Financial information for Retro Designs includes the following selected data: What is the company's price-earnings ratio?
$$\begin{array} { | l r | } 
\hline \text { Net income (in millions) } & \$ 175 \
\hline \text { Preferred stock dividends (in millions) } & \$ 25 \
\hline \text { Common shares outstanding (in millions) } & 250 \
\hline \text { Stock price } & \$ 10.00 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The price-earnings ratio (P/E ratio) is calculated by dividing the market value per share by the earnings per share (EPS). First, calculate the EPS: subtract preferred dividends from net income and then divide by the number of common shares outstanding. EPS = (\$175 million - \$25 million) / 250 million shares = \$0.60 per share. Then, calculate the P/E ratio: \$10.00 / \$0.60 = 16.7.

Financial Information for Retro Designs Includes the Following Selected Data