Blossom Medical manufactures hospital beds and other institutional furniture. Th

Question

Blossom Medical manufactures hospital beds and other institutional furniture. The company's comparative balance sheet and income statement for 2015 and 2016 follow. Blossom Medical Comparative Balance Sheet As of December 31 2016 2015 Assets Current assets Cash Accounts receivable, net Inventory Other current assets $417,400 776,400 681,000 247,000 2,121,800 8,401,900 $12,156,310 $10,523,700 $300,000 1,065,000 717,000 300,000 2,382,000 9,774,310 Total current assets Property, plant, & equipment, net Total assets Liabilities and Stockholders Equity Current liabilities Long-term debt $3,100,000 3,702,600 6,802,600 50,000 100,000 5,203,710 5,353,710 $12,156,310 $2,846,000 3,892,600 6,738,600 50,000 103,800 3,631,300 3,785,100 $10,523,700 Total liabilities Preferred stock, $5 par value Common stock, $0.25 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity

Explanation / Answer

Price Earning Ratio = Merket price / EPS

EPS = Net Income - Preferred Dividends / Average outsanding number of common shares

Average outsanding number of common shares = (common shares @ the beginning + common shares @ end ) /2

= [($100,000 / $0.25 ) + ($103,800 / $0.25 )] / 2 = 407,600 shares

EPS for 2016 = ($2,001,860 - $29,450) / 407,600 shares = $4.84 per share

Price Earning Ratio for 2016 = $45 / $4.84 = $9.30

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