Market Value Ratios Lab R Doors' year-end price on its common stock is $40.The firm has a profit margin of 10 percent,total assets of $30 million,a total asset turnover ratio of 2,no preferred stock,and there are 4 million shares of common stock outstanding.What is the PE ratio for Lab R Doors?
A)0.375
B)0.750
C)6.667
D)26.667

Question

Quizplus · Accepted Answer

PE ratio (Price to Earnings Ratio) = Market value per share / Earnings per share
Earnings per share = Profit / Number of shares outstanding
Profit = Profit margin * Total assets turnover * Total assets
Total assets turnover = Sales / Total assets

Using the given information:
Earnings per share = 0.10 * (2 * $30 million) / 4 million = $0.15 per share
Market value per share = $40 per share

PE ratio = $40 / $0.15 = 266.67 or 26.67 (rounded to the nearest hundredth)

Therefore, the best choice is D.

Market Value Ratios Lab R Doors' Year-End Price on Its