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eezt.mheducation.com/hmtpx?-0.7155874312799446 1528652052629 3.00 pcint PA11-5 Computing and Interpreting Retun on Equity (ROE) and Price/Earnings (P/E) Ratios LO 11-5 Two onine saone mpies reported the Sallowing n their fincial elslements nd Gama 2014 $108000 $107804 85900 171,373 47.186 472814 407 151 427,049 2014 Net incume Total stockhoders\' equty Earmings pe share Stuck price when annus resuils repored540 49.04 1.30 30.56 2 20 2.39 67.70 Required: -a. Cempune the 2015 ROE for each company. (Round your answers to 1 decimal place. Fun ad Fun and Gama BusineseWorld 2 h. Wch company do ivasor peart value mor-? Fun and Gamas References eBook & Resources Diticulty 2 Mediun ?lype here to search

Solution

1(a).2015 ROE for each company

ROE = [ Net Income / Average Stockholders Equity ] x 100

Business World - ROE

= [ $106,000 / { (647,186 + 472,814) / 2 } ] x 100

= [ 106,000 / 560,000 ] x 100

= 18.9%

Fun and Games - ROE

= [ $86,900 / { (407,151 + 427,049) / 2 } ] x 100

= [ 86,900 / 417100 ] x 100

= 20.8%

1(b).” Fun and Games “ Company appears to generate greater return on stock holders equity in 2015

2(a)2015 P/E Ratio for Each Company

P/E Ratio = Market Price of the share / EPS

Business World – P/E Ratio

= $52.40 / $2.2

= 23.8 Times

Fun and Games – P/E Ratio

= $30.66 / 1.30

= 23.6 Times

2(b). “Business World “ Company