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The price-earnings ratio

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An investor buys a stock for $40 per share and sells it for $45 after one year. Also, at the end of that year, the dividend per stock is $1. The company has 100,000 shares outstanding and a total profit for the year of $500,000. The price-earnings ratio for this firm at the time the stock was sold is?

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Earnings per share= Total Profit/Shares outstanding
=500000/100000
=$5 per share

P/E ratio= Price /Earnings per ...

Solution Summary

The price-earnings ratio is delivered.

$2.19
See Also This Related BrainMass Solution

Hills Industries: Valuation using Price-Earnings Ratio and Price-Book Value Ratio

See attached files.

Company Valuation - as part of a project, I am required to provide a financial Valuation of a Company using the valuation methods below. This is an Australian Company "Hills Industries" and full details can be found at http://www.hills.com.au

? The working out for each valuation methods below and answers with calculations behind each valuation method. (if possible in a excel file so that I can review the method used) Plus a brief explanation of each method and results (so that I can them review the method and understand then and to expand and write a full report)

The only information given is the excel file attached hills.xls and suggested viewing of the annual reports for 2004 and/or 2003... also attached.

Using Relative Valuation techniques:

A. Price-Earnings Ratio (P/E) + explanation
B. Price-Book Value Ratio (P/BV) + explanation

Note A: How to apply a P/E valuation technique?

First you look for the current stock price of the stock

Next you compute the expected Earnings-Per-Share (EPS):
Expected EPS = Current EPS x (1 + growth rate)

Third, you divide the current price by the expected EPS to get a P/E multiple.

Fourth, you compute the P/E of the industry by taking the average P/E of several large competitors.

Lastly, you compare your stock's P/E with the industry's average P/E, if your stock's P/E is lower than the industry's average P/E, your stock is considered "undervalue".

Note B: How to apply a P/BV valuation model?

Refer to Note A: almost identical process as the P/E model.

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