Questions:
Baggs Corp.
Use the selected data presented below from the financial statements of Baggs Corp. for 2012 and 2011 to answer the questions that follow.
2012 2011
Net income $110,000 $123,000
Cash dividends paid on preferred stock $ 12,000 $ 15,000
Cash dividends paid on common stock $ 42,000 $ 38,000
Weighted average number of common shares outstanding $105,000 $ 95,000
Market price per share of common stock at the end of the year $ 16.00 $ 13.00
For the datea above for Baggs Corp.
A) Calculate earnings per share for 2012 for Baggs. Why is this considered one of the most quoted ratios for public companies? Which investors, common or preferred or both, desire this information?
B) Calculate the price/earnings ratio for 2012 for Baggs. Why is this ratio important to investors? Explain.