Question

recall that the pe ratio is the ratio of the price per share to the earnings per share, including earnings from the past 4 quarters. compute the pe ratios of the following companies (a) the share price is $12.44 and the earnings per share is $0.66 (b) the share price is $35.12, there are 1.4 billion shares, and the company made $5.25 billion in profit over the past 12 months (c) the share price is $450.24, and over each of the past 4 quarters, the company made $2.15, $1.61, $1.75, and $2.21 in earnings per share. (a) the pe ratio is approximately 18.8 (simplify your answer. round to one decimal place as needed.) (b) the pe ratio is approximately \\(\square\\) (simplify your answer. round to one decimal place as needed.)

Explanation:

Step1: Find Earnings Per Share (EPS)

First, we need to calculate the earnings per share. The company made a profit of $5.25 billion over 1.4 billion shares. So, EPS = Total Profit / Number of Shares.
$$\text{EPS} = \frac{5.25 \text{ billion}}{1.4 \text{ billion}} = 3.75$$

Step2: Calculate PE Ratio

The PE ratio is the ratio of the price per share to the earnings per share. The share price is $35.12. So, PE Ratio = Share Price / EPS.
$$\text{PE Ratio} = \frac{35.12}{3.75} \approx 9.4$$

Answer:

9.4