# Stock and Price/ Earnings Ratio

Topics: Stock, Stock market, Shareholder Pages: 2 (458 words) Published: September 21, 2014
Part 1
1. Common stockholder/Prospective owner:

a. Indicate whether or not you would purchase the stock of this company at a current market price of \$24 per share.

b. Justify your decision using at least three reasons that are based upon the ratios you calculated. A) No, I would not buy stock at a market price of \$24 per share because: B) 1. The book value per share of common stock has declined from Year 10, 3.43 to Year 11, 3.30. It illustrates how much money each stockholder would get if the company were to liquidate its assets. At a marker price of \$24 per share, getting merely \$3.30 per share would not recover a shareholder’s investment. It will take a long time for the prospective owner to get back its investment. This is a weakness of the company. 2. The price/ earnings ratio is 94.22. It is a very high ratio considering we have low earnings per share. The price/ earnings per share compare the market prices with the actual earnings per share. At a market price of \$24 per share, the price/ earnings ratio would be 218.18. It would cost 218 times what each share of stock is actually earning in a year. Investing \$24 per share to earn 0.11 cents would not be a good investment. It will take a while to get back its investment, if ever. 3. The earnings per share is 0.11, which is very low. An earnings per share is the amount of income earned per share of common stock outstanding. The company is only earning 0.11 cents for each share of stock remaining. It is a very low rate of return thus it seems to be a weakness for the company.

2. Common stockholder/Current owner:

a. Indicate whether or not you would keep your shares of stock based on the company's current performance.

b. Justify your decision using at least three reasons that are based upon the ratios you calculated. Part 2
A. No, I would not keep my shares of stock because:
B. 1. The company’s rate of

3. Short-term creditor:

Your company is a supplier to...