Question

The financial statements of Friendly Fashions include the following selected data (in millions): ($ in millions except share data) 2021 2020 Sales $ 8,143 $ 9,234 Net income $ 159 $ 628 Stockholders' equity $ 2,000 $ 2,240 Average Shares outstanding (in millions) 720 - Dividends per share $ 0.30 - Stock price $ 9.90 - Required: Calculate the following ratios for Friendly Fashions in 2021.

Answer 1

Answer:

A. Return on equity 7.5%

B. Dividend yield 3.03%

C. Earnings per share $0.22

D. Price-earnings ratio 45

Explanation:

A. Calculation to determine the Return on equity

First step is to calculate the Average stockholders equity using this formula

Average stockholders equity = ( Beginning stockholders equity + Ending stockholders equity)/2

Let plug in the formula

Average stockholders equity= (2,240+2000)/2

Average stockholders equity= $2,120 millions

Now let calculate the Return on equity using this formula

Return on equity=Net Income / Average stockholders equity

Let plug in the formula

Return on equity=159 / 2,120

Return on equity= 7.5%

B. Calculation to determine the Dividend yield

Using this formula

Dividend yield=Dividend per share / Stock price

Let plug in the formula

Dividend yield=0.30/ 9.90

Dividend yield= 3.03%

C. Calculation to determine the Earnings per share

Using this formula

Earnings per share=Net Income / Average shares outstanding

Let plug in the formula

Earnings per share=159/ 720

Earnings per share= $0.22

D. Calculation to determine Price-earnings ratio

Using this is formula

Price-earnings ratio=Stock price / Earnings per share

Let plug in the formula

Price-earnings ratio=9.90 / 0.22

Price-earnings ratio= 45