Explore BrainMass

Analyzing Stock Based on EPS

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

A financial analyst is examining the relationship between stock prices and earnings per share. She chooses sixteen publicly traded companies at random and records for each the company's current stock price and the company's earnings per share reported for the past 12 months. Her data are given below, with x denoting the earnings per share from the previous year, and y denoting the current stock price (both in dollars). Based on these data, she computes the least-squares regression line to be ^y=0.186 + 0.045x

Earnings per Current stock price
share, x (in dollars) y, (in dollars)
30.83 1.69
29.56 1.4
59 2.31
30.46 0.9
14.01 0.52
25.47 1.11
17.41 0.67
58.37 2.9
37.62 1.36
21.31 0.52
41.84 1.11
50.47 1.49
41.93 1.63
37.79 1.33
52.25 2.69
40.48 1.74

For these data, values for earnings per share that are less than the mean of the values for earnings per share tend to be paired with current stock prices that are greater than or less than the mean of the current stock prices?
According to the regression equation, for an increase of one dollar in earnings per share, there is a corresponding increase of how many dollars in current stock price?
What was the observed current stock price (in dollars) when the earnings per share was 30.83 dollars?

From the regression equation, what is the predicted current stock price (in dollars) when the earnings per share is 30.83 dollars? (Round your answer to at least two decimal places)

© BrainMass Inc. brainmass.com October 24, 2018, 9:12 pm ad1c9bdddf

Solution Preview

(i) Since the slope of the regression is positive, we can say that the values for earnings per share that are less than the mean of the values for ...

Solution Summary

Just over 100 words explain how to find the predicted current stock price from a regression equation.

See Also This Related BrainMass Solution

Basic and Diluted EPS, Stock-Based Compensation, Proctor and Gamble Footnote Study

Impact of Transactions on Financial Statement Elements

Identify the specific effects (including account name, dollar amount, and financial statement impact) of the following transactions or conditions on the various financial statement components:
I = Increase D = Decrease NE = No effect
[see attached file]

Financial Statement Analysis

Proctor & Gamble offers a variety of stock-based compensation plans to its executives. Refer to P&G's 2012 annual report to answer the following questions related to stock-based compensation, dilutive securities, and earnings per share. The 2012 annual report of Proctor & Gamble can be found on Blackboard. P&G's fiscal year end is June 30.

Used report found here:

Earnings Per Share
1. What was the % per-share decrease in basic EPS from 2011 to 2012? Round to the nearest whole percent.
2. The Income Statement reports 2012 diluted EPS as $3.66. What types of securities are causing the dilution?
3. How many stock options were not included in the diluted EPS calculation because they were anti-dilutive?

Stock-Based Compensation
1. How does P&G determine the exercise price for its stock options?
2. What are the terms of the following stock options (e.g. period of benefit and exercisable time frame)?
a. Key manager stock option awards (since Sept 2002).
b. Key manager restricted stock units.
c. Senior level executive performance stock units.
3. How much stock-based compensation expense/cost did P&G recognize in 2012 for all of its stock-based compensation plans? NOTE: ignore related tax benefits. What percentage is this of total after-tax net income for the year (round to one decimal place)?
4. How much compensation expense related to stock option grants remains to be recognized as of 6/30/12?
5. What model does P&G use to measure the fair value (compensation expense) of its stock options? List two assumptions used in that model.
6. How does P&G estimate the number of options that will be exercised and employee termination patterns for purposes of the valuation model?
7. How many shares of stock related to P&G's stock compensation plans are exercisable at 6/30/12?
8. What is the weighted-average exercise price of those exercisable shares?

View Full Posting Details